Forming physician network joint ventures.

AS PHYSICIANS STRUGGLE WITH THE GROWING number of acronyms that describe new practice combinations in the rapidly changing health care market, the government strives to adapt antitrust policies to fit these evolving entities. The industry continues to undergo substantial restructuring in response to cost pressures and legislative reform. Independent physicians are responding to these changes by creating their own delivery systems that market their services to patients, health plans, and other third-party payers. However, these new combinations present potential antitrust issues since, by their very nature, they require agreement by member physicians on fees and other terms of competition.

The primary objective of federal antitrust laws is to prevent anti-competitive conduct. The principal federal antitrust acts are the Sherman Act, (1) the Clayton Act, (2) the Federal Trade Commission Act, (3) the Robinson-Patman Act, (4) and the Hart-Scott-Rodino Act. (5) These acts are designed to prohibit any unreasonable interference by contract, conspiracy, or collusion to fix prices, exclude competition, or control the market in a specific geographical region. Until the 1970s, the medical profession was deemed exempt from federal antitrust laws. Traditionally, health care was viewed as a noncompetitive "learned profession" and, as such, was regulated by the states. In 1975 the Supreme Court, in the case of Goldfarb versus Virginia State Bar, (6) removed the exemption for "learned professions" and brought attorneys and physicians under antitrust scrutiny.

In 1993, the U. S. Department of Justice and the Federal Trade Commission issued "Statements of Antitrust Enforcement Policy in the Health Care Area." These statements were the first jointly-issued policies creating parameters under which providers could legally operate, including physician network joint ventures. These guidelines were revised in 1994 in an attempt to provide further guidance resulting from changes within the industry. In 1996, revisions were released on August 28th in response to "evolving market arrangements involving joint activity by health care providers." (7) These modified guidelines relax antitrust scrutiny for physician network joint ventures, and should provide an impetus for increased integration.

The antitrust guidelines do not have the force of law, rather they reflect the current enforcement policy of the agencies only and are not binding on the courts. (8) Although state agencies may be significantly influenced by the guidelines, they do not preempt state action. Additionally, it is important to note that the guidelines apply only to government enforcement action and provide no protection against claims brought by private individuals. Federal Trade Commission Chairman Robert Pitofsky asserted that the new guidelines clarify a wider range of provider networks which will not offend antitrust law. The introduction to the guidelines states that antitrust scrutiny will not be applied to physician networks "more strictly or more leniently than those in other industries or favor any health care delivery organization over other forms that consumers may desire."

Statement eight of the antitrust guidelines sets out the permissible participation rate for physicians in a joint venture, defined as a "physician-controlled venture in which the network's physician participants collectively agree on prices or price-related terms and jointly market their services." The guidelines specify safety zones that describe arrangements that will not be challenged by the agencies absent "extraordinary circumstances." The safety zones do not set out the only lawful combinations, but outline the arrangements presumed to have no anticompetitive results. The guidelines distinguish between exclusive and nonexclusive participation. Physicians in an exclusive venture do not contract independently with other groups or payers, in contrast to an exclusive venture in which members are free to affiliate. In order to qualify under a safety zone, ventures must meet two requirements:

1. The organization must consist of no more than the allowable percentage of the physicians in each specialty in the relevant market.

2. The venture must share substantial financial risk.

The allotted caps--20 percent for exclusive ventures and 30 percent for nonexclusive ventures--are based on the percentage of physicians in each included specialty who have hospital staff privileges and practice in the relevant market. When determining exclusivity, the agencies look to operation of the venture and not solely the contractual terms of the relationship, or the description of operation. The guidelines contain a list of indicia of non-exclusivity to ensure that combinations are not just purporting to be exclusive.

The guidelines explain that financial risk sharing is required, not because it is a "desired end in itself, but because it is a clear and reliable indicator that a physician network involves sufficient integration by its participants to achieve significant efficiencies." Ventures can share risk through a number of mechanisms, such as capitation, fee withholds, global fees, and utilization goals. The requirement for risk sharing is based upon the belief that it creates an incentive for physicians to work together to keep costs down and improve the quality of care by apportioning the services of network participants. Flexibility to respond to evolving organizational concepts is available as the guidelines specifically state that the examples given are not inclusive. The agencies encourage emerging networks to utilize the Expedited Business Review and Advisory Opinion procedures to obtain agency position in regard to proposed integrations. (9)

There may be integrations that fall outside of the safety zones, and these ventures are not automatically illegal. The agencies recognize that there may be ventures outside the safety zones that could create economic efficiencies without serious anticompetitive effects. Such ventures will be analyzed under a rule of reason. General antitrust law treats collusion among competitors to set prices as per se illegal, however, some amount of price agreement is required in physician joint ventures. Therefore, under a rule of reason analysis, price agreements and other behavior which would otherwise be considered illegal will be allowed if they are reasonably necessary to accomplish significant efficiencies. The potential pro-competitive efficiencies will be balanced against any anticompetitive effects.

The rule of reason requires that pro-competitive efficiencies must outweigh the anticompetitive effects. Analysis under the rule of reason is accomplished in three steps. Agencies first determine the relevant market by looking at the services the venture provides and determining what substitutes are available to consumers outside of the network. The agencies then evaluate the effect of the venture in the relevant market to determine if it is likely to have any anticompetitive effects. Specifically, the venture is examined to decide whether it could increase prices above competitive levels or impede the formation or operation of other networks. Once these analyses are complete, the agencies evaluate the pro-competitive efficiencies of the venture and balance them against the likely anticompetitive effects--if pro-competitive effects prevail, the venture will not be challenged by the agencies.

The introduction to the guidelines states that they are presented to "resolve, as completely as possible, the problem of uncertainty that some have said may deter mergers or joint ventures that would lower health care costs." The prevailing consensus for health care reform is motivated almost exclusively upon a desire to control spiraling medical costs. The most efficient way to achieve this goal is through competition driven by market forces, rather than government imposed, precipitous regulation. In order to use market forces to achieve cost efficiencies, there must be ample ventures of competing physicians available for negotiation with third-party payers.

Without adequate physician groups, competitive efficiencies will be lost--it is imperative that all pro-competitive ventures be allowed to operate to maintain sufficient levels of competition. Although the last several years have seen an increase in antitrust scrutiny and enforcement in the health care industry, the risk of enforcement action should not be viewed as a barrier to new physician joint ventures. Ventures that are carefully designed and implemented within the antitrust guidelines should not receive agency challenge. The release of the 1996 revised guidelines indicates that antitrust enforcement will continue to be a significant force in health care reform to ensure a system that provides consumers with the highest quality service at the lowest possible cost.

References

(1.) Sherman Antitrust Act, 15 U.S.C. s 1 et seq. (1890).

(2.) Clayton Act, 15 U.S.C. s 18 (1914).

(3.) Federal Trade Commission Act, 15 U.S.C. s 45 (1914).

(4.) Robinson-Patman Act, 15 U.S.C. s 13 (1936).

(5.) Hart-Scott-Rodino Act, 15 U.S.C. s 18a (1976).

(6.) Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572, 1975-1 Trade Cases P 60,355 (U.S.Va., June 16, 1975) (No. 74-70).

(7.) Department of Justice and Federal Trade Commission Statements of Antitrust Enforcement Policy in Health Care, Issued August 28, 1996.

(8.) See Fruehauf v. FTC, 603 F.2d 345, 353-53 (2nd Cir., June 28, 1979) (No. 278 78-4053).

(9.) Antitrust Division Business Review Procedure, 28 C.F.R. 50.6 (1996).

Kimberly R. Anderson, JD, is Staff Attorney at West Publishing Company in Eagan, Minnesota. She can be reached at 612/687-1772.