FTC staff advisory opinions are not issued all that frequently and advisory opinions regarding clinical integration are issued even less frequently. The latest advisory opinion, issued last week, is therefore noteworthy, not only because it concerns clinical integration, but also because it is the first such opinion issued after President Obama’s healthcare legislation – Affordable Care Act (“ACA”) – was passed and upheld. Providers of all sorts are busy adjusting to the new realities of healthcare, and the need to deliver integrative, coordinated care is at the forefront of everyone’s consciousness. The advisory opinion presents the provider community with a general framework for a sustainable network in which physicians can clinically integrate and jointly contract, free of regulatory concern.
The staff advisory opinion was requested by Norman Physician Hospital Organization, a multiprovider network comprised of approximately 280 physicians in 38 specialty areas and the Norman Regional Health System. The PHO accounts for most of the physicians who practice in and around Norman, Oklahoma. Although the PHO was originally established in 1994 to facilitate “messenger model” contracting, it decided to reinvent itself as a clinically integrated network that would engage in contracting on behalf of the PHO and its members. The PHO appears to have incorporated all of the key elements to an antitrust-safe clinical integration network, including:
- Clinical Practice Guidelines
- Electronic Platform
- Physician Commitment
The PHO established a new infrastructure designed to ensure that its physicians will work together to provide integrated care. Towards that end it formed several committees that are charged with, among other duties, creating practice guidelines, monitoring and ensuring compliance, and auditing medical records. The PHO also appointed a new Medical Director, hired several staff members to support the clinical integration program and manage the electronic records platform, and hired a Director of Quality Assurance and a Medical Informatics Officer.
Clinical Practice Guidelines
The PHO committed to develop its own evidence-based clinical practice guidelines for at least 50 disease-specific conditions. To date, the PHO has already identified nine diseases for which they will be developing and implementing guidelines. It is expected that through the physicians’ participation in the various committees, there will be a high degree of adherence to the guidelines the PHO has developed.
Furthermore, the PHO committed to investing the resources to implement an electronic platform. The platform will include a clinical decisions support system, e-prescribing, electronic medical records systems, and an electronic health interface system. The idea is that such a platform will help the physicians utilize quality measure parameters, make prescribing more efficient, and facilitate physician-to-physician communication.
In addition to satisfying the network’s eligibility criteria, physicians must demonstrate a tangible commitment to the clinical integration program, both in terms of time and money. The PHO will require each physician to pay a $350 membership and $150 annual dues, enter into a Participating Provider Agreement and to acquire (and maintain) certain hardware and software necessary to utilize the PHO’s electronic platform. Additionally, each physician must serve as a member of at least one PHO committee, and must adopt and adhere to the clinical practice guidelines. Each physician must also make his/her data available for review and analysis, and in the case of noncompliance, the physician will be required to undergo peer-to-peer counseling and proctoring, and may be subject to a corrective action plan. The physician must also agree to allow the PHO to “withhold” a percentage of the reimbursements made by payers who contract with the PHO in order to fund the clinical integration program.
Although PHO physicians are required to participate in any contract that the PHO enters into with a payer, the PHO will be non-exclusive. In other words, if the PHO enters into a contract with a payer, a participating physician is bound by that contract. But, any physician is free to contract outside of the PHO if the payer does not desire to contract with the PHO as a whole. This last point is crucial as the FTC recognized that the PHO most likely has market power in the Norman physician market. The fact that payers have an option to contract with the physicians outside of the PHO goes a long way towards ameliorating any anticompetitive effect of the PHO’s market power.
The FTC must first decide whether the network is simply a mechanism whereby independent physicians can jointly contract or whether it is truly an integrated joint venture. If it is the former, the network is deemed per se illegal. If, on the other hand, the network is designed to promote clinical integration and collaboration among its participants, then it is judged by the “rule of reason”, which seeks to balance the network’s likely anticompetitive effects (i.e., higher rates) against its anticipated procompetitive benefits.
Assuming the latter, the FTC next must determine whether any joint contracting is ancillary to, and reasonably necessary for, the legitimate purpose of the network. Once past that hurdle, the FTC conducts the balancing under the rule of reason to determine whether the network is ultimately anticompetitive, procompetitive or competitively neutral. Finally, even if the network is judged to be procompetitive, the FTC must ensure that the network will not produce “spillover effects,” or anticompetitive effects outside of the network, through the increased communication among competing providers within the network.
The PHO, at least preliminarily, passed each step. Because the PHO intends to employ a structure that is designed to promote clinical integration that reasonably could be expected to produce significant benefits and costs-savings, the FTC staff believed that rule of reason treatment was appropriate. Additionally, joint contracting was considered necessary to maintain a consistent panel of physicians who are committed to the clinical integration program. Joint contracting will also incentivize physicians to invest the time and resources to ensure the success of the network’s integrative goals, as well as facilitate marketing. FTC staff believed that the design of the PHO was reasonably geared to produce net procompetitive benefits. Although the PHO admitted that physician reimbursement rates might increase, that likely reflects increased utilization of physician resources that offer the “potential to achieve greater efficiency, improved care, and ultimately lower costs for network patients.” The fact that the number of contracting alternatives to payers will not decrease due to the PHO’s non-exclusivity was critical to the FTC’s analysis that the PHO would not, on balance, result in higher costs. Finally, the FTC staff did not believe that the PHO’s conduct would likely raise other competitive issues. For instance, the PHO was not forcing payers to do business with all of its participating hospitals nor was it discouraging payers from incentivizing patients to choose certain providers. Additionally, the PHO was taking measures to prevent the sharing of competitively sensitive information and would conduct antitrust training to ensure that the network’s activities did not lead to, or facilitate improper conduct in any other arena.
There are three key takeaways from the first post-ACA advisory opinion on clinical integration issued by FTC staff, the first since 2009.
- First, the keys to a successful clinical integration program include proper infrastructure, development and implementation of meaningful clinical practice guidelines, installation of an electronic platform, and substantial physician commitment in terms of both time and resources.
- Second, the need for the network to be non-exclusive is essential, particularly if the physicians will comprise a significant portion of the market. FTC staff stressed this point several times, stating that if the network operates “as a de facto exclusive network, it would raise serious concerns and could be necessary to revisit . . . whether staff would recommend an antitrust enforcement action.”
- Finally, joint contracting must be essential to the success of the network, or else it will not be deemed lawful, no matter how clinically integrated the venture. As the FTC stressed:
Norman PHO’s proffered justification for its proposed joint contracting activities should not be confused with a claim that physicians would not be incentivized to participate in a clinical integration program absent the ability to fix prices and engage in joint negotiations with payers. This claim is not a valid justification and does not establish ancillarity under the antitrust laws.
If you have any questions about the subject matter of this alert, please feel free to contact Jay Hardcastle
or Michael Denniston