FTC Provides New Guidance on Antitrust Compliance in Physician Collaborations

Health Care & Antitrust Law Update

Date: March 18, 2013


The U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) continue to actively enforce the antitrust laws with respect to hospitals, doctors and others in the health care field. Many enforcement activities involve challenges to mergers between hospitals or between hospitals and other health care providers. Recent examples include FTC challenges to proposed hospital mergers in Ohio and Georgia and to a proposed acquisition by a hospital in Pennsylvania of a 15-bed surgical center.

Other enforcement activities involve the antitrust authorities challenging certain physician collaborations as agreements in restraint of trade. However, some collaborative actions may be permissible under the antitrust laws if structured and managed correctly, as illustrated by a February 2013 FTC advisory opinion issued in regard to a Norman, Oklahoma physician hospital organization (Norman PHO Advisory Opinion). This opinion is significant because it is the first FTC advisory opinion on such collaborative action since the enactment of the "Affordable Care Act" (ACA) and because it approves a multiprovider network not involving an accountable care organization (ACO), even though ACOs are a major innovation and priority under the ACA.

Antitrust Basics

The antitrust laws prohibit agreements in restraint of trade. Certain types of agreements are seen as so likely to restrain trade that they are illegal on their face, regardless of their actual impact on competition. Such agreements are said to be illegal per se. Other agreements are legal or illegal under the "rule of reason." An agreement evaluated under the rule of reason may be legal or illegal depending on an evaluation of the anticompetitive effects, the procompetitive effects and whether the procompetitive effects outweigh the anticompetitive effects.

Agreements between competitors on the prices or price levels they will charge customers (or patients) or on how to allocate customers between them are illegal per se, except in certain circumstances such as those described below. Accordingly, it would be illegal per se for independent physicians to agree on charges to patients. As an example, it would be illegal per se for a group of competing physicians to bargain collectively on the rates of reimbursement they should be paid by an insurance company or other third party payer, since such collective bargaining implies an agreement on price.

For instance, in January 2013, the DOJ filed an antitrust complaint against the Oklahoma State Chiropractic Independent Physicians Association for negotiating contracts on behalf of the association's members that set prices for chiropractic services. The association agreed to settle the matter by entering into a consent decree prohibiting it from contracting with third party payers on behalf of chiropractors.

In February 2013, eight independent nephrologists in Puerto Rico (which is subject to U.S. antitrust laws) settled antitrust charges brought by the FTC for collectively bargaining with an insurer to fix prices at which they would provide services. The FTC alleged that the doctors jointly presented the insurer with a proposal for higher reimbursement rates and terminated their services when the proposal was not accepted. The settlement includes a consent order that prohibits the physicians from such anticompetitive conduct in the future.

However, joint price negotiations by competing health care providers may be evaluated under the rule of reason if the providers are financially integrated or clinically integrated and the agreement is reasonably necessary to accomplish the procompetition benefits of the integration. This is the type of situation considered in the Norman PHO Advisory Opinion.

The Norman PHO Advisory Opinion

The Norman PHO is a multiprovider network joint venture formed by the Norman Regional Health System (which includes hospitals and family medical centers) and the Norman Physicians Association (whose member physicians hold staff appointments or clinical positions at Norman Regional Health Systems hospitals).

The Norman PHO sought to create a "clinically integrated" network and then to engage in joint contracting with third party payers on behalf of its participating physicians and hospitals, but only with respect to providing physician services. The Norman PHO, including physicians who compete with one another, would make joint decisions on pricing their services and other terms of dealing with payers. It would establish a contracting committee charged with evaluating payer contract proposals to determine whether the Norman PHO's goals might be accomplished within the framework of those proposals. The Norman PHO would require all participating physicians to participate in any contract between the Norman PHO and a payer.

The Norman PHO includes approximately 280 participating physicians representing roughly 38 specialty practice areas. In its service area, it includes approximately 10 percent of the physicians and 10 percent of the hospitals. However, the Norman PHO includes most of the physicians who practice in and around Norman and is the only hospital system in the immediate area.

The Norman PHO would operate as a non-exclusive network, and participating physicians would be free to contract independently with any payer that chooses not to contract with the Norman PHO.

Clinical Integration

The first step in justifying joint price setting and negotiations is to structure the arrangement so it is considered under the rule of reason rather than as illegal per se. The rule of reason may apply where competing providers achieve financial or clinical integration in a manner likely to produce significant efficiencies that benefit consumers and the pricing agreements are reasonably necessary to realize those efficiencies.

Clinical integration may be evidenced by the PHO implementing an active and ongoing program to evaluate and modify practice patterns by its providers and creating a high degree of interdependence and cooperation among the providers to control costs and assure quality.

The Norman PHO proposed to achieve clinical integration by:

  • Creating mechanisms to monitor and control costs and utilization while assuring quality of care. The mechanisms include developing, implementing and enforcing evidenced-based clinical practice guidelines.
  • Utilizing a new electronic platform to monitor and review participating physicians' actual practice patterns, accomplishments and compliance with the Norman PHO standards.
  • Utilizing a revised Participating Practitioner Agreement under which each physician is committed to implementing the Norman PHO's clinical practice guidelines. The revised agreement also enables the Norman PHO to take corrective action against noncomplying physicians.
  • Investing capital, time and money of the Norman PHO and its physicians to realize the projected efficiencies, including establishing physician quality assurance and other committees and hiring key personnel.
The Necessity for Joint Contracting

The Norman PHO asserted, and the FTC accepted, that jointly contracting on behalf of a single, predetermined physician panel consisting of primary care physicians and specialists representing roughly 38 specialty areas of practice would facilitate the Norman PHO's projected benefits and efficiencies. The Norman PHO stated that joint contracting is necessary to establish and maintain a consistent panel of like-minded physicians who have a shared commitment to participating in all aspects of the clinical integration program for all patients covered under the network contracts. Absent joint contracting, each physician would be required to independently evaluate contracting opportunities and decide whether or not to participate, which the Norman PHO contended might result in physician panels that vary significantly from contract to contract.

Further, once contractually bound to participate in all Norman PHO contracts, the participating physicians would have a greater incentive to contribute their time and effort to Norman PHO's clinical integration efforts, enabling the Norman PHO to fully deploy its plans for delivering coordinated care and enhancing its ability to collect, analyze and respond to data and experience gained from treating its patients.

Evaluating Competitive Effects

Once it is determined that the clinical integration of a health care network takes joint contracting out of the illegal per se category, the next step is to evaluate that network under the rule of reason. For instance, a PHO that includes 100 percent of the physicians in an area on an exclusive basis (meaning they are not allowed to contract outside the PHO) may not be illegal per se, but may very well be illegal under the rule of reason. While this 100 percent PHO may achieve some efficiencies, holding a 100 percent market share would likely mean the anticompetitive effects would outweigh the procompetitive effects of the integration.

However, the Norman PHO Advisory Opinion concluded that implementing the proposed program would appear likely, on balance, to be procompetitive or competitively neutral. Implementing the program would not be expected to affect the number of contracting alternatives available to payers seeking to obtain provider services in the Norman PHO service area because the Norman PHO's non-exclusive nature would leave individual participating providers free to contract with payers who did not wish to contract with it.

Nevertheless, the FTC expressed concern about the potential anticompetitive effects in the Norman area since the Norman PHO would consist of a substantial portion of physicians in the area with clinical privileges at the only hospital in Norman. The FTC was also concerned that the Norman PHO expected to negotiate higher reimbursement rates for its participating physicians because the proposed program would require increased utilization of physician resources to offer potentially greater efficiency, improved care and, ultimately, lower cost for network patients.

The FTC said these concerns were mitigated, however, by the Norman PHO's representations that, under the revised participating practitioner agreement, customers would be able to bypass the Norman PHO and contract directly with individual providers. Also, the Norman PHO stated it would not attempt to force payers to contract with it (it might do this by encouraging participating providers to refuse to contract with individuals whose payers do not wish to deal with the Norman PHO). In addition, the Norman PHO stated it would not use its bargaining power in some services (for instance, its influence as the only hospital in the immediate Norman area) to limit competition in the sale of any other services (such as forcing patients to use physicians within the Norman PHO).

Avoiding Spillover Effects

The FTC was also concerned about "spillover effects." The Norman PHO's proposed clinical integration program would likely promote increased communication and interdependence among its participating providers, possibly facilitating improper agreements, whether tacit or overt, in their contracting activities outside the network. For instance, physicians might sit on a committee that sets prices the Norman PHO would charge for certain medical procedures; the FTC was concerned that those pricing discussions might spill over into how the physicians price their services provided outside the network. For example, it would be unlawful for the participating physicians to agree to reject any contract proposal concerning reimbursement rates for services outside the Norman PHO that are lower than the rates established by the Norman PHO for its clinically integrated program. To deal with this potential problem, the Norman PHO provided assurance that its legitimate business activities would not lead to improper conduct or spillover effects. Among other things, the Norman PHO stated it would provide antitrust counseling and training to ensure that participating providers do not collectively set terms for dealing with payers that choose not to contract with the network.


The Norman PHO Advisory Opinion is important for several reasons. First, it makes clear the FTC is still willing to approve joint contracting actions for PHOs in the proper circumstances and with the proper safeguards, even outside the confines of heavily regulated ACOs. Second, the FTC is willing to do so even if all steps toward clinical integration and safeguards against antitrust violations are not yet finally determined or implemented.

However, the advisory opinion also leaves numerous questions. For instance, it identifies numerous actions to achieve clinical integration, various actions necessary to avoid spillover effects and at least a hypothetical market. What is not clear is whether all these steps and safeguards are necessary to achieve antitrust compliance and, if not, which are necessary and which are optional. For instance, is antitrust training and counseling for approximately 280 participating physicians representing roughly 38 specialty practice areas a mandatory condition? Also, would a PHO always have to be non-exclusive if established in an area where there remains plenty of alternative competition even if the network itself is exclusive?

Second, what will happen if the program described in the advisory opinion does not work out as planned? What if lower costs for network patients are never achieved? What if the network operates in fact as an exclusive network because none of the participating physicians wish to operate outside the network (or they feel peer pressure not to work outside the network)? The FTC indicated this would raise "serious concerns" and it would have to reevaluate whether to take any antitrust enforcement action.

Opportunities to engage in joint contracting on behalf of a PHO may be available, but they require experience and judgment to determine how best to structure and manage a PHO to avoid potential antitrust issues.