United States: FTC Rejects Proposed Joint Contracting Plan

On March 28, 2006, the Federal Trade Commission ("FTC") issued a staff advisory opinion rejecting Suburban Health Organization’s ("SHO’s") proposed clinical integration and joint contracting plan ("Plan"). SHO sought the FTC’s blessing for a Plan that would allow it to become the exclusive contracting entity for eight hospitals and 192 primary care physicians, many of which were competing providers, based on the clinical integration of the providers. Although the FTC acknowledged that the integration of the hospitals’ practice guidelines and quality management protocols created modest efficiencies in the delivery of primary physician care, it concluded that the aspects of the Plan calling for the joint negotiation of contracts by SHO on behalf of the hospitals and physicians were not reasonably necessary to achieve those efficiencies, and thus would violate antitrust principles. The FTC’s rejection of the SHO Plan once again demonstrates that the federal antitrust agencies will closely scrutinize arrangements for joint contracting on behalf of competing providers.

SHO consisted of eight Physician- Hospital Organizations ("PHOs"), seven affiliated with local hospitals in the Indianapolis area and one affiliated with a multi-facility health system. The eight PHOs employed a total of 192 primary care physicians, who, generally, practiced medicine within their respective hospitals’ primary service areas. However, there was some overlap among the areas serviced by the employed primary care physicians. SHO managed two risk-based contracts and facilitated seven non-risk contracts among the physicians and payors through a messenger model prior to seeking the FTC’s blessing to negotiate non-risk contracts on behalf of all its competing members.

The Plan proposed by SHO in its bid to gain FTC approval of its joint contracting proposal involved cooperation among SHO’s eight member hospitals and their employed primary care physicians to promote quality and efficiency of primary physician care. The program consisted of four interrelated components: (1) medical management activities, including the adoption of collective practice guidelines and medical management protocols; (2) quality management programs to measure compliance and assess quality outcomes; (3) practice support, including education and credentialing; and (4) a physician incentive plan composed of incentive compensation funded by the member hospitals.

The FTC concluded that the Plan had the potential to create limited efficiencies in the provision of primary care physician services, but the horizontal agreements among SHO’s eight member hospitals concerning the fees to be charged by their employed primary care physicians – and the elimination of the ability of the individual member hospitals to compete with SHO in the provision of those primary care physician services – did not appear reasonably necessary to achieve those efficiencies.

In reaching its conclusion, the FTC noted that the potential efficiencies of the Plan were limited in scope and effect. First, the FTC noted that the Plan lacked a sufficient enforcement mechanism for compliance because SHO had no authority or control over the performance of the individual physicians or the member hospitals. Second, the Plan lacked interdependence; it did not involve the collaborative provision of primary care physician services, nor did it require significant interaction among physicians at the different SHO hospitals. Third, the fact that the Plan was limited to employed primary care physicians precluded efficiencies with regard to the physician specialists and other nonparticipating physicians. Finally, the FTC indicated that the Plan to enhance quality and efficiency did not create any new product(s) because it did not fundamentally alter the nature of services provided to patients or to payors.

In addition to expressing its skepticism about the efficiencies created by SHO’s Plan, the FTC also determined that the collective negotiation of fees for the member hospitals’ employed physicians was not reasonably necessary to achieve whatever efficiencies might be created. The FTC did not agree that fee setting was necessary to motivate the participating physicians, noting, instead, the fact that the physicians’ employment by the hospitals would itself provide sufficient incentive for their compliance with the Plan. The FTC also did not agree that agreement on the fees for services provided by the employed primary care physicians was necessary to eliminate the possibility that one hospital would derive greater benefits from the Plan than other members. Moreover, the FTC found no connection between the agreement among the hospitals to fix the fees charged by their employed primary care physicians and the reduction of any liability exposure of the member hospitals or SHO. In rejecting each of the claimed necessities for joint contracting, the FTC noted the existence of alternative means of accomplishing the same degree of benefit without involving the use of a horizontal agreement to fix the fees for primary care physician services.

This advisory opinion is the most recent FTC pronouncement addressing clinical integration as a potential exception to the general rule prohibiting joint contracting by competitive providers. As demonstrated by the FTC’s rejection of the Plan, a Plan calling for minimal integration and virtually no interdependence among competing health care providers will not be sufficient to justify joint contracting. Instead, such a plan must include an active and on-going program to evaluate and modify practice patterns among physician participants and create a high degree of interdependence and cooperation among the hospitals to control costs and enhance the quality of care, in order to obtain FTC approval.

Although the antitrust enforcement authorities have not enunciated the specific requirements a provider network must fulfill in order to qualify as clinically integrated, and there is no published case law dealing with the clinical integration exception to the general rule prohibiting joint contracting among competitors, the various FTC pronouncements, including the SHO opinion, appear to mean that a qualifying clinical integration program ("Program") must include the following elements in order to achieve approval:

• Clinical Protocols

The Program must include clinical protocols that are applicable to most patients treated by the participating providers. The protocols must be substantive and comprehensive, and the participating physicians must use them. The coordinating entity should monitor use of and compliance with the protocols by the physician providers, who should be reminded of the protocols, preferably at the point of care (e.g., through a system that notifies a physician that the patient is overdue for a mammogram under the schedule set forth in the protocols).

• Performance Goals and Monitoring

The Program should also include measurable quality performance goals, and employ a mechanism for monitoring physician progress toward meeting those goals. Written feedback on quality performance should be provided to the physicians, and corrective action must be taken if a participating physician fails to satisfy the clinical protocols or comply with the quality standards. Moreover, the physicians’ compensation should be tied to quality performance and those who consistently fail to follow protocols or do not meet the quality standards should be terminated. The coordinating entity should also inspect the offices of independent physician participants to review their quality of care, including reviews of patients’ charts.

• Information Technology

A central system for tracking quality and utilization is also required. This system should include a physician reminder mechanism that helps ensure compliance with clinical protocols. Similarly, there should be a central patient registry to follow patients who have chronic diseases, in order that physicians can identify those patients who are in need of preventative services and/or follow-up care consistent with the clinical protocols.

• Disease Management Programs

management programs for pa tients with certain serious conditions (e.g., heart disease, diabetes, etc.), overseen by nurse care managers who are in contact with these patients to monitor their conditions, provide education, and coordinate physician and other appointments.

• Patient Education Programs

The Program should include active patient education programs which teach self-management skills to chronically ill patients, such as special classes, web-based information, and/or patient support groups.

• Utilization Review Programs

Utilization and cost control programs and systems to track these metrics, and incentives for physicians to comply with utilization policies, are also required.

A court or antitrust enforcement agency will require any provider invoking the clinical integration exception to prove its programs and systems are a viable actuality, not just a written presentation; demonstrate its serious focus of the program; demonstrate that financial resources are invested; that the program has received concentrated and considerable review by senior management; and that the standards will be enforced.

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