Statements of Antitrust (1996)
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Statements of Antitrust
Enforcement Policy
in Health Care
Issued by the
U.S. Department of Justice
and the
Federal Trade Commission
August 1996
TABLE OF CONTENTS
Introduction
. . . . . . . . . . . . . . . . . . . . . . . .
1
Statement 1 - Mergers Among Hospitals . . . . . . . . . . . .
8
Statement 2 - Hospital Joint Ventures Involving
High Technology Or Other Expensive
Health Care Equipment
. . . . . . . . . . . .
12
Statement 3 - Hospital Joint Ventures Involving
Specialized Clinical Or Other Expensive
Health Care Services . . . . . . . . . . . . .
31
Statement 4 - Providers' Collective Provision Of
Non-Fee-Related Information To Purchasers
Of Health Care Services
. . . . . . . . . . .
40
Statement 5 - Providers' Collective Provision Of
Fee-Related Information To Purchasers Of
Health Care Services . . . . . . . . . . . . .
43
Statement 6 - Provider Participation In Exchanges Of
Price And Cost Information . . . . . . . . . .
49
Statement 7 - Joint Purchasing Arrangements Among Health
Care Providers . . . . . . . . . . . . . . . .
53
Statement 8 - Physician Network Joint Ventures
61
Statement 9 - Multiprovider Networks
. . . . . . .
. . . . . . . . . . . . 106
DEPARTMENT OF JUSTICE AND FEDERAL TRADE
COMMISSION STATEMENTS OF ANTITRUST ENFORCEMENT
POLICY IN HEALTH CARE
INTRODUCTION
In September 1993, the Department of Justice and the Federal
Trade Commission (the "Agencies") issued six statements of their
antitrust enforcement policies regarding mergers and various
joint activities in the health care area.
statements addressed:
The six policy
(1) hospital mergers; (2) hospital joint
ventures involving high-technology or other expensive medical
equipment; (3) physicians' provision of information to purchasers
of health care services; (4) hospital participation in exchanges
of price and cost information; (5) health care providers’ joint
purchasing arrangements; and (6) physician network joint
ventures.
The Agencies also committed to issuing expedited
Department of Justice business reviews and Federal Trade
Commission advisory opinions in response to requests for
antitrust guidance on specific proposed conduct involving the
health care industry.
The 1993 policy statements and expedited specific Agency
guidance were designed to advise the health care community in a
time of tremendous change, and to address, as completely as
possible, the problem of uncertainty concerning the Agencies’
enforcement policy that some had said might deter mergers, joint
ventures, or other activities that could lower health care costs.
Sound antitrust enforcement, of course, continued to protect
consumers against anticompetitive activities.
When the Agencies issued the 1993 health care antitrust
enforcement policy statements, they recognized that additional
guidance might be desirable in the areas covered by those
statements as well as in other health care areas, and committed
to issuing revised and additional policy statements as warranted.
In light of the comments the Agencies received on the 1993
statements and the Agencies’ own experience, the Agencies revised
and expanded the health care antitrust enforcement policy
statements in September 1994.
The 1994 statements, which
superseded the 1993 statements, added new statements addressing
hospital joint ventures involving specialized clinical or other
expensive health care services, providers' collective provision
of fee-related information to purchasers of health care services,
and analytical principles relating to a broad range of health
care provider networks (termed “multiprovider networks”), and
expanded the antitrust "safety zones" for several other
statements.
Since issuance of the 1994 statements, health care markets
have continued to evolve in response to consumer demand and
competition in the marketplace.
New arrangements and variations
on existing arrangements involving joint activity by health care
providers continue to emerge to meet consumers', purchasers', and
payers' desire for more efficient delivery of high quality health
care services.
During this period, the Agencies have gained
additional experience with arrangements involving joint provider
activity.
As a result of these developments, the Agencies have
2
decided to amplify the enforcement policy statement on physician
network joint ventures and the more general statement on
multiprovider networks.
In these revised statements, the Agencies continue to analyze
all types of health care provider networks under general
antitrust principles.
These principles are sufficiently flexible
to take into account the particular characteristics of health
care markets and the rapid changes that are occurring in those
markets.
The Agencies emphasize that it is not their intent to
treat such networks either more strictly or more leniently than
joint ventures in other industries, or to favor any particular
procompetitive organization or structure of health care delivery
over other forms that consumers may desire.
Rather, their goal
is to ensure a competitive marketplace in which consumers will
have the benefit of high quality, cost-effective health care and
a wide range of choices, including new provider-controlled
networks that expand consumer choice and increase competition.
The revisions to the statements on physician network joint
ventures and multiprovider networks are summarized below.
In
addition to these revisions, various changes have been made to
the language of both statements to improve their clarity.
No
revisions have been made to any of the other statements.
Physician Network Joint Ventures
The revised statement on physician network joint ventures
provides an expanded discussion of the antitrust principles that
apply to such ventures.
The revisions focus on the analysis of
3
networks that fall outside the safety zones contained in the
existing statement, particularly those networks that do not
involve the sharing of substantial financial risk by their
physician participants.
The revised statement explains that
where physicians' integration through the network is likely to
produce significant efficiencies, any agreements on price
reasonably necessary to accomplish the venture’s procompetitive
benefits will be analyzed under the rule of reason.
The revised statement adds three hypothetical examples to
further illustrate the application of these principles:
(1) a
physician network joint venture that does not involve the sharing
of substantial financial risk, but receives rule of reason
treatment due to the extensive integration among its physician
participants; (2) a network that involves both risk-sharing and
non-risk-sharing activities, and receives rule of reason
treatment; and (3) a network that involves little or no
integration among its physician participants, and is per se
illegal.
The safety zones for physician network joint ventures remain
unchanged, but the revised statement identifies additional types
of financial risk-sharing arrangements that can qualify a network
for the safety zones.
It also further emphasizes two points
previously made in the 1994 statements.
First, the enumeration
in the statements of particular examples of substantial financial
risk sharing does not foreclose consideration of other
arrangements through which physicians may share substantial
4
financial risk.
Second, a physician network that falls outside
the safety zones is not necessarily anticompetitive.
Multiprovider Networks
In 1994, the Agencies issued a new statement on multiprovider
health care networks that described the general antitrust
analysis of such networks.
The revised statement on
multiprovider networks emphasizes that it is intended to
articulate general principles relating to a wide range of health
care provider networks.
Many of the revisions to this statement
reflect changes made to the revised statement on physician
network joint ventures.
In addition, four hypothetical examples
involving PHOs ("physician-hospital organizations"), including
one involving “messenger model” arrangements, have been added.
Safety Zones and Hypothetical Examples
Most of the nine statements give health care providers
guidance in the form of antitrust safety zones, which describe
conduct that the Agencies will not challenge under the antitrust
laws, absent extraordinary circumstances.
The Agencies are aware
that some parties have interpreted the safety zones as defining
the limits of joint conduct that is permissible under the
antitrust laws.
This view is incorrect.
The inclusion of
certain conduct within the antitrust safety zones does not imply
that conduct falling outside the safety zones is likely to be
challenged by the Agencies.
fact-intensive.
Antitrust analysis is inherently
The safety zones are designed to require
5
consideration of only a few factors that are relatively easy to
apply, and to provide the Agencies with a high degree of
confidence that arrangements falling within them are unlikely to
raise substantial competitive concerns.
Thus, the safety zones
encompass only a subset of provider arrangements that the
Agencies are unlikely to challenge under the antitrust laws.
The
statements outline the analysis the Agencies will use to review
conduct that falls outside the safety zones.
Likewise, the statements' hypothetical examples concluding
that the Agencies would not challenge the particular arrangement
do not mean that conduct varying from the examples is likely to
be challenged by the Agencies.
The hypothetical examples are
designed to illustrate how the statements' general principles
apply to specific situations.
Interested parties should examine
the business review letters issued by the Department of Justice
and the advisory opinions issued by the Federal Trade Commission
and its staff for additional guidance on the application and
interpretation of these statements.
Copies of those letters and
opinions and summaries of the letters and opinions are available
from the Agencies at the mailing and Internet addresses listed at
the end of the statements.
The statements also set forth the Department of Justice's
business review procedure and the Federal Trade Commission's
advisory opinion procedure under which the health care community
can obtain the Agencies' antitrust enforcement intentions
regarding specific proposed conduct on an expedited basis.
6
The
statements continue the commitment of the Agencies to respond to
requests for business reviews or advisory opinions from the
health care community no later than 90 days after all necessary
information is received regarding any matter addressed in the
statements, except requests relating to hospital mergers outside
the antitrust safety zone and multiprovider networks.
The
Agencies also will respond to business review or advisory opinion
requests regarding multiprovider networks or other non-merger
health care matters within 120 days after all necessary
information is received.
The Agencies intend to work closely
with persons making requests to clarify what information is
necessary and to provide guidance throughout the process.
The
Agencies continue this commitment to expedited review in an
effort to reduce antitrust uncertainty for the health care
industry in what the Agencies recognize is a time of fundamental
change.
The Agencies recognize the importance of antitrust guidance
in evolving health care contexts.
Consequently, the Agencies
continue their commitment to issue additional guidance as
warranted.
7
1.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON MERGERS AMONG HOSPITALS
Introduction
Most hospital mergers and acquisitions ("mergers") do not
present competitive concerns.
While careful analysis may be
necessary to determine the likely competitive effect of a
particular hospital merger, the competitive effect of many
hospital mergers is relatively easy to assess.
This statement
sets forth an antitrust safety zone for certain mergers in light
of the Agencies' extensive experience analyzing hospital
mergers.
Mergers that fall within the antitrust safety zone
will not be challenged by the Agencies under the antitrust laws,
absent extraordinary circumstances.1
This policy statement also
briefly describes the Agencies' antitrust analysis of hospital
mergers that fall outside the antitrust safety zone.
A.
Antitrust Safety Zone: Mergers Of Hospitals That
Will Not Be Challenged, Absent Extraordinary Circumstances,
By The Agencies
The Agencies will not challenge any merger between two
general acute-care hospitals where one of the hospitals (1) has
an average of fewer than 100 licensed beds over the three most
recent years, and (2) has an average daily inpatient census of
1
The Agencies are confident that conduct falling within the
antitrust safety zones contained in these policy statements is
very unlikely to raise competitive concerns. Accordingly, the
Agencies anticipate that extraordinary circumstances warranting a
challenge to such conduct will be rare.
8
fewer than 40 patients over the three most recent years, absent
extraordinary circumstances.
This antitrust safety zone will
not apply if that hospital is less than 5 years old.
The Agencies recognize that in some cases a general acute
care hospital with fewer than 100 licensed beds and an average
daily inpatient census of fewer than 40 patients will be the
only hospital in a relevant market.
As such, the hospital does
not compete in any significant way with other hospitals.
Accordingly, mergers involving such hospitals are unlikely to
reduce competition substantially.
The Agencies also recognize that many general acute care
hospitals, especially rural hospitals, with fewer than 100
licensed beds and an average daily inpatient census of fewer than
40 patients are unlikely to achieve the efficiencies that larger
hospitals enjoy.
Some of those cost-saving efficiencies may be
realized, however, through a merger with another hospital.
B.
The Agencies' Analysis Of Hospital Mergers That Fall Outside
The Antitrust Safety Zone
Hospital mergers that fall outside the antitrust safety
are not necessarily anticompetitive, and may be
The Agencies' analysis of hospital mergers
zone
procompetitive.
follows the five
steps set forth in the Department of Justice/ Federal Trade
Commission 1992 Horizontal Merger Guidelines.
Applying the analytical framework of the Merger Guidelines
to particular facts of specific hospital mergers, the Agencies
often have concluded that an investigated hospital merger will
9
not result in a substantial lessening of competition in
situations where market concentration might otherwise raise an
inference of anticompetitive effects.
Such situations include
transactions where the Agencies found that: (1) the merger would
not increase the likelihood of the exercise of market power
either because of the existence post-merger of strong
competitors or because the merging hospitals were sufficiently
differentiated; (2) the merger would allow the hospitals to
realize significant cost savings that could not otherwise be
realized; or (3) the merger would eliminate a hospital that
likely would fail with its assets exiting the market.
Antitrust challenges to hospital mergers are relatively rare.
Of the hundreds of hospital mergers in the United States since
1987, the Agencies have challenged only a handful, and in several
cases sought relief only as to part of the transaction.
Most
reviews of hospital mergers conducted by the Agencies are
concluded within one month.
***
If hospitals are considering mergers that appear to fall
within the antitrust safety zone and believe they need
additional certainty regarding the legality of their conduct
under the antitrust laws, they can take advantage of the
Department's business review procedure (28 C.F.R. § 50.6 (1992))
or the Federal Trade Commission's advisory opinion procedure (16
C.F.R. §§ 1.1-1.4 (1993)).
The Agencies will respond to
business review or advisory opinion requests on behalf of
10
hospitals considering mergers that appear to fall within the
antitrust safety zone within 90 days after all necessary
information is submitted.
11
2.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON HOSPITAL JOINT VENTURES INVOLVING
HIGH-TECHNOLOGY OR OTHER EXPENSIVE
HEALTH CARE EQUIPMENT
Introduction
Most hospital joint ventures to purchase or otherwise share
the ownership cost of, operate, and market high-technology or
other expensive health care equipment and related services do not
create antitrust problems.
In most cases, these collaborative
activities create procompetitive efficiencies that benefit
consumers.
These efficiencies include the provision of services
at a lower cost or the provision of services that would not have
been provided absent the joint venture.
Sound antitrust
enforcement policy distinguishes those joint ventures that on
balance benefit the public from those that may increase prices
without providing a countervailing benefit, and seeks to prevent
only those that are harmful to consumers.
The Agencies have
never challenged a joint venture among hospitals to purchase or
otherwise share the ownership cost of, operate and market
high-technology or other expensive health care equipment and
related services.
This statement of enforcement policy sets forth an antitrust
safety zone that describes hospital high-technology or other
expensive health care equipment joint ventures that will not be
challenged, absent extraordinary circumstances, by the Agencies
under the antitrust laws.
It then describes the Agencies'
antitrust analysis of hospital high-technology or other expensive
12
health care equipment joint ventures that fall outside the
antitrust safety zone.
Finally, this statement includes examples
of its application to hospital high-technology or other expensive
health care equipment joint ventures.
A.
Antitrust Safety Zone: Hospital High-Technology Joint
Ventures That Will Not Be Challenged, Absent Extraordinary
Circumstances, By The Agencies
The Agencies will not challenge under the antitrust laws any
joint venture among hospitals to purchase or otherwise share the
ownership cost of, operate, and market the related services of,
high-technology or other expensive health care equipment if the
joint venture includes only the number of hospitals whose
participation is needed to support the equipment, absent
extraordinary circumstances.2
This applies to joint ventures
involving purchases of new equipment as well as to joint ventures
involving existing equipment.3
A joint venture that includes
additional hospitals also will not be challenged if the
additional hospitals could not support the equipment on their own
2
A hospital or group of hospitals will be considered able
to support high-technology or other expensive health care
equipment for purposes of this antitrust safety zone if it could
recover the costs of owning, operating, and marketing the
equipment over its useful life. If the joint venture is limited
to ownership, only the ownership costs are relevant. If the
joint venture is limited to owning and operating, only the owning
and operating costs are relevant.
3
Consequently, the safety zone would apply in a situation
in which one hospital had already purchased the health care
equipment, but was not recovering the costs of the equipment and
sought a joint venture with one or more hospitals in order to
recover the costs of the equipment.
13
or through the formation of a competing joint venture, absent
extraordinary circumstances.
For example, if two hospitals are each unlikely to recover
the cost of individually purchasing, operating, and marketing the
services of a magnetic resonance imager (MRI) over its useful
life, their joint venture with respect to the MRI would not be
challenged by the Agencies.
On the other hand, if the same two
hospitals entered into a joint venture with a third hospital that
independently could have purchased, operated, and marketed an MRI
in a financially viable manner, the joint venture would not be in
this antitrust safety zone.
If, however, none of the three
hospitals could have supported an MRI by itself, the Agencies
would not challenge the joint venture.4
Information necessary to determine whether the costs of a
piece of high-technology health care equipment could be recovered
over its useful life is normally available to any hospital or
group of hospitals considering such a purchase.
This information
may include the cost of the equipment, its expected useful life,
the minimum number of procedures that must be done to meet a
machine's financial breakeven point, the expected number of
procedures the equipment will be used for given the population
4
The antitrust safety zone described in this statement
applies only to the joint venture and agreements reasonably
necessary to the venture. The safety zone does not apply to or
protect agreements made by participants in a joint venture that
are related to a service not provided by the venture. For
example, the antitrust safety zone that would apply to the MRI
joint venture would not apply to protect an agreement among the
hospitals with respect to charges for an overnight stay.
14
served by the joint venture and the expected price to be charged
for the use of the equipment.
Expected prices and costs should
be confirmed by objective evidence, such as experiences in
similar markets for similar technologies.
B.
The Agencies' Analysis Of Hospital High-Technology Or Other
Expensive Health Care Equipment Joint Ventures That Fall
Outside The Antitrust Safety Zone
The Agencies recognize that joint ventures that fall outside
the antitrust safety zone do not necessarily raise significant
antitrust concerns.
The Agencies will apply a rule of reason
analysis in their antitrust review of such joint ventures.5
The
objective of this analysis is to determine whether the joint
venture may reduce competition substantially, and, if it might,
whether it is likely to produce procompetitive efficiencies that
outweigh its anticompetitive potential.
This analysis is
flexible and takes into account the nature and effect of the
joint venture, the characteristics of the venture and of the
hospital industry generally, and the reasons for, and purposes
of, the venture.
It also allows for consideration of
5
This statement assumes that the joint venture arrangement
is not one that uses the joint venture label but is likely merely
to restrict competition and decrease output. For example, two
hospitals that independently operate profitable MRI services
could not avoid charges of price fixing by labeling as a joint
venture their plan to obtain higher prices through joint
marketing of their existing MRI services.
15
efficiencies that will result from the venture.
The steps
involved in a rule of reason analysis are set forth below.6
Step one:
Define the relevant market.
The rule of reason
analysis first identifies what is produced through the joint
venture.
The relevant product and geographic markets are then
properly defined.
This process seeks to identify any other
provider that could offer what patients or physicians generally
would consider a good substitute for that provided by the joint
venture.
Thus, if a joint venture were to purchase and jointly
operate and market the related services of an MRI, the relevant
market would include all other MRIs in the area that are
reasonable alternatives for the same patients, but would not
include providers with only traditional X-ray equipment.
Step two:
Evaluate the competitive effects of the venture.
This step begins with an analysis of the structure of the
relevant market.
If many providers would compete with the joint
venture, competitive harm is unlikely and the analysis would
continue with step four described below.
6
Many joint ventures that could provide substantial
efficiencies also may present little likelihood of competitive
harm. Where it is clear initially that any joint venture
presents little likelihood of competitive harm, the step-by-step
analysis described in the text below will not be necessary. For
example, when two hospitals propose to merge existing expensive
health care equipment into a joint venture in a properly defined
market in which many other hospitals or other health care
facilities operate the same equipment, such that the market will
be unconcentrated, then the combination is unlikely to be
anticompetitive and further analysis ordinarily would not be
required. See Department of Justice/Federal Trade Commission
1992 Horizontal Merger Guidelines.
16
If the structural analysis of the relevant market showed that
the joint venture would eliminate an existing or potentially
viable competing provider and that there were few competing
providers of that service, or that cooperation in the joint
venture market may spill over into a market in which the parties
to the joint venture are competitors, it then would be necessary
to assess the extent of the potential anticompetitive effects of
the joint venture.
In addition to the number and size of
competing providers, factors that could restrain the ability of
the joint venture to raise prices either unilaterally or through
collusive agreements with other providers would include:
(1) characteristics of the market that make anticompetitive
coordination unlikely; (2) the likelihood that other providers
would enter the market; and (3) the effects of government
regulation.
The extent to which the joint venture restricts competition
among the hospitals participating in the venture is evaluated
during this step.
In some cases, a joint venture to purchase or
otherwise share the cost of high-technology equipment may not
substantially eliminate competition among the hospitals in
providing the related service made possible by the equipment.
For example, two hospitals might purchase a mobile MRI jointly,
but operate and market MRI services separately.
17
In such
instances, the potential impact on competition of the joint
venture would be substantially reduced.7
Step three:
efficiencies.
Evaluate the impact of procompetitive
This step requires an examination of the joint
venture's potential to create procompetitive efficiencies, and
the balancing of these efficiencies against any potential
anticompetitive effects.
The greater the venture's likely
anticompetitive effects, the greater must be the venture's likely
efficiencies.
In certain circumstances, efficiencies can be
substantial because of the need to spread the cost of expensive
equipment over a large number of patients and the potential for
improvements in quality to occur as providers gain experience and
skill from performing a larger number of procedures.
Step four:
Evaluate collateral agreements.
This step
examines whether the joint venture includes collateral agreements
or conditions that unreasonably restrict competition and are
unlikely to contribute significantly to the legitimate purposes
of the joint venture.
The Agencies will examine whether the
collateral agreements are reasonably necessary to achieve the
efficiencies sought by the joint venture.
For example, if the
participants in a joint venture formed to purchase a mobile
lithotripter also agreed on the daily room rate to be charged
lithotripsy patients who required overnight hospitalization, this
7
If steps one and two reveal no competitive concerns with
the joint venture, step three is unnecessary, and the analysis
continues with step four described below.
18
collateral agreement as to room rates would not be necessary to
achieve the benefits of the lithotripter joint venture.
Although
the joint venture itself would be legal, the collateral agreement
on hospital room rates would not be legal and would be subject to
challenge.
C.
Examples Of Hospital High-Technology Joint Ventures
The following are examples of hospital joint ventures that
are unlikely to raise significant antitrust concerns.
Each is
intended to demonstrate an aspect of the analysis that would be
used to evaluate the venture.
1.
New Equipment That Can Be Offered Only By A Joint
Venture
All the hospitals in a relevant market agree that they
jointly will purchase, operate and market a helicopter to provide
emergency transportation for patients.
The community's need for
the helicopter is not great enough to justify having more than
one helicopter operating in the area and studies of similarly
sized communities indicate that a second helicopter service could
not be supported.
safety zone.
This joint venture falls within the antitrust
It would make available a service that would not
otherwise be available, and for which duplication would be
inefficient.
19
2.
Joint Venture To Purchase Expensive Equipment
All five hospitals in a relevant market agree to jointly
purchase a mobile health care device that provides a service for
which consumers have no reasonable alternatives.
The hospitals
will share equally in the cost of maintaining the equipment, and
the equipment will travel from one hospital to another and be
available one day each week at each hospital.
The hospitals'
agreement contains no provisions for joint marketing of, and
protects against exchanges of competitively sensitive information
regarding, the equipment.8
There are also no limitations on the
prices that each hospital will charge for use of the equipment,
on the number of procedures that each hospital can perform, or on
each hospital's ability to purchase the equipment on its own.
Although any combination of two of the hospitals could afford to
purchase the equipment and recover their costs within the
equipment's useful life, patient volume from all five hospitals
is required to maximize the efficient use of the equipment and
lead to significant cost savings.
In addition, patient demand
would be satisfied by provision of the equipment one day each
week at each hospital.
The joint venture would result in higher
use of the equipment, thus lowering the cost per patient and
potentially improving quality.
This joint venture does not fall within the antitrust safety
zone because smaller groups of hospitals could afford to purchase
8
Examples of such information include prices and marketing
plans.
20
and operate the equipment and recover their costs.
Therefore,
the joint venture would be analyzed under the rule of reason.
The first step is to define the relevant market.
In this
example, the relevant market consists of the services provided by
the equipment, and the five hospitals all potentially compete
against each other for patients requiring this service.
The second step in the analysis is to determine the
competitive effects of the joint venture.
Because the joint
venture is likely to reduce the number of these health care
devices in the market, there is a potential restraint on
competition.
The restraint would not be substantial, however,
for several reasons.
First, the joint venture is limited to the
purchase of the equipment and would not eliminate competition
among the hospitals in the provision of the services.
The
hospitals will market the services independently, and will not
exchange competitively sensitive information.
In addition, the
venture does not preclude a hospital from purchasing another unit
should the demand for these services increase.
Because the joint venture raises some competitive concerns,
however, it is necessary to examine the potential efficiencies
associated with the venture.
As noted above, by sharing the
equipment among the five hospitals significant cost savings can
be achieved.
The joint venture would produce substantial
efficiencies while providing access to high quality care.
Thus,
this joint venture would on balance benefit consumers since it
would not lessen competition substantially, and it would allow
21
the hospitals to serve the community's need in a more efficient
manner.
Finally, in this example the joint venture does not
involve any collateral agreements that raise competitive
concerns.
On these facts, the joint venture would not be
challenged by the Agencies.
3.
Joint Venture Of Existing Expensive Equipment Where One
Of The Hospitals In The Venture Already Owns The
Equipment
Metropolis has three hospitals and a population of 300,000.
Mercy and University Hospitals each own and operate their own
magnetic resonance imaging device ("MRI").
General Hospital does
not.
Three independent physician clinics also own and operate
MRIs.
All of the existing MRIs have similar capabilities.
The
acquisition of an MRI is not subject to review under a
certificate of need law in the state in which Metropolis is
located.
Managed care plans have told General Hospital that, unless it
can provide MRI services, it will be a less attractive
contracting partner than the other two hospitals in town.
The
five existing MRIs are slightly underutilized -- that is, the
average cost per scan could be reduced if utilization of the
machines increased.
There is insufficient demand in Metropolis
for six fully-utilized MRIs.
General has considered purchasing its own MRI so that it can
compete on equal terms with Mercy and University Hospitals.
However, it has decided based on its analysis of demand for MRI
services and the cost of acquiring and operating the equipment
22
that it would be better to share the equipment with another
hospital.
General proposes forming a joint venture in which it
will purchase a 50 percent share in Mercy's MRI, and the two
hospitals will work out an arrangement by which each hospital has
equal access to the MRI.
Each hospital in the joint venture will
independently market and set prices for those MRI services, and
the joint venture agreement protects against exchanges of
competitively sensitive information among the hospitals.
There
is no restriction on the ability of each hospital to purchase its
own equipment.
The proposed joint venture does not fall within the antitrust
safety zone because General apparently could independently
support the purchase and operation of its own MRI.
Accordingly,
the Agencies would analyze the joint venture under a rule of
reason.
The first step of the rule of reason analysis is defining the
relevant product and geographic markets.
Assuming there are no
good substitutes for MRI services, the relevant product market in
this case is MRI services.
Most patients currently receiving MRI
services are unwilling to travel outside of Metropolis for those
services, so the relevant geographic market is Metropolis.
Mercy, University, and the three physician clinics are already
offering MRI services in this market.
Because General intends to
offer MRI services within the next year, even if there is no
joint venture, it is viewed as a market participant.
23
The second step is determining the competitive impact of the
joint venture.
Absent the joint venture, there would have been
six independent MRIs in the market.
concerns with the joint venture.
This raises some competitive
The fact that the joint venture
will not entail joint price setting or marketing of MRI services
to purchasers reduces the venture's potential anticompetitive
effect.
The competitive analysis would also consider the
likelihood of additional entry in the market.
If, for example,
another physician clinic is likely to purchase an MRI in the
event that the price of MRI services were to increase, any
anticompetitive effect from the joint venture becomes less
likely.
Entry may be more likely in Metropolis than other areas
because new entrants are not required to obtain certificates of
need.
The third step of the analysis is assessing the likely
efficiencies associated with the joint venture.
The magnitude of
any likely anticompetitive effects associated with the joint
venture is important; the greater the venture's likely
anticompetitive effects, the greater must be the venture's likely
efficiencies.
In this instance, the joint venture will avoid the
costly duplication associated with General purchasing an MRI, and
will allow Mercy to reduce the average cost of operating its MRI
by increasing the number of procedures done.
The competition
between the Mercy/General venture and the other MRI providers in
the market will provide some incentive for the joint venture to
operate the MRI in as low-cost a manner as possible.
24
Thus, there
are efficiencies associated with the joint venture that could not
be achieved in a less restrictive manner.
The final step of the analysis is determining whether the
joint venture has any collateral agreements or conditions that
reduce competition and are not reasonably necessary to achieve
the efficiencies sought by the venture.
For example, if the
joint venture required managed care plans desiring MRI services
to contract with both joint venture participants for those
services, that condition would be viewed as anticompetitive and
unnecessary to achieve the legitimate procompetitive goals of the
joint venture.
This example does not include any unnecessary
collateral restraints.
On balance, when weighing the likelihood that the joint
venture will significantly reduce competition for these services
against its potential to result in efficiencies, the Agencies
would view this joint venture favorably under a rule of reason
analysis.
4.
Joint Venture Of Existing Equipment Where Both Hospitals
In The Venture Already Own The Equipment
Valley Town has a population of 30,000 and is located in a
valley surrounded by mountains.
over 75 miles away.
The closest urbanized area is
There are two hospitals in Valley Town:
Valley Medical Center and St. Mary's.
Valley Medical Center
offers a full range of primary and secondary services.
Mary's offers primary and some secondary services.
St.
Although both
hospitals have a CT scanner, Valley Medical Center's scanner is
25
more sophisticated.
Because of its greater sophistication,
Valley Medical Center's scanner is more expensive to operate, and
can conduct fewer scans in a day.
A physician clinic in Valley
Town operates a third CT scanner that is comparable to St. Mary's
scanner and is not fully utilized.
Valley Medical Center has found that many of the scans that
it conducts do not require the sophisticated features of its
scanner.
Because scans on its machine take so long, and so many
patients require scans, Valley Medical Center also is experiencing significant scheduling problems.
St. Mary's scanner, on
the other hand, is underutilized, partially because many individuals go to Valley Medical Center because they need the more
sophisticated scans that only Valley Medical Center's scanner can
provide.
Despite the underutilization of St. Mary's scanner, and
the higher costs of Valley Medical Center's scanner, neither
hospital has any intention of discontinuing its CT services.
Valley Medical Center and St. Mary's are proposing a joint
venture that would own and operate both hospitals' CT scanners.
The two hospitals will then independently market and set the
prices they charge for those services, and the joint venture
agreement protects against exchanges of competitively sensitive
information between the hospitals.
There is no restriction on
the ability of each hospital to purchase its own equipment.
The proposed joint venture does not qualify under the
Agencies' safety zone because the participating hospitals can
independently support their own equipment.
26
Accordingly, the
Agencies would analyze the joint venture under a rule of reason.
The first step of the analysis is to determine the relevant
product and geographic markets.
As long as other diagnostic
services such as conventional X-rays or MRI scans are not viewed
as a good substitute for CT scans, the relevant product market is
CT scans.
If patients currently receiving CT scans in Valley
Town would be unlikely to switch to providers offering CT scans
outside of Valley Town in the event that the price of CT scans in
Valley Town increased by a small but significant amount, the
relevant geographic market is Valley Town.
participants in this relevant market:
There are three
Valley Medical Center, St.
Mary's, and the physician clinic.
The second step of the analysis is determining the
competitive effect of the joint venture.
Because the joint
venture does not entail joint pricing or marketing of CT
services, the joint venture does not effectively reduce the
number of market participants.
This reduces the venture's
potential anticompetitive effect.
In fact, by increasing the
scope of the CT services that each hospital can provide, the
joint venture may increase competition between Valley Medical
Center and St. Mary's since now both hospitals can provide
sophisticated scans.
Competitive concerns with this joint
venture would be further ameliorated if other health care
providers were likely to acquire CT scanners in response to a
price increase following the formation of the joint venture.
27
The third step is assessing whether the efficiencies
associated with the joint venture outweigh any anticompetitive
effect associated with the joint venture.
This joint venture
will allow both hospitals to make either the sophisticated CT
scanner or the less sophisticated, but less costly, CT scanner
available to patients at those hospitals.
Thus, the joint venture should increase quality of care by
allowing for better utilization and scheduling of the equipment,
while also reducing the cost of providing that care, thereby
benefitting the community.
The joint venture may also increase
quality of care by making more capacity available to Valley
Medical Center; while Valley Medical Center faced capacity
constraints prior to the joint venture, it can now take advantage
of St. Mary's underutilized CT scanner.
The joint venture will
also improve access by allowing patients requiring routine scans
to be moved from the sophisticated scanner at Valley Medical
Center to St. Mary's scanner where the scans can be performed
more quickly.
The last step of the analysis is to determine whether there
are any collateral agreements or conditions associated with the
joint venture that reduce competition and are not reasonably
necessary to achieve the efficiencies sought by the joint
venture.
Assuming there are no such agreements or conditions,
the Agencies would view this joint venture favorably under a rule
of reason analysis.
28
As noted in the previous example, excluding price setting and
marketing from the scope of the joint venture reduces the
probability and magnitude of any anticompetitive effect of the
joint venture, and thus reduces the likelihood that the Agencies
will find the joint venture to be anticompetitive.
If joint
price setting and marketing were, however, a part of that joint
venture, the Agencies would have to determine whether the cost
savings and quality improvements associated with the joint
venture offset the loss of competition between the two hospitals.
Also, if neither of the hospitals in Valley Town had a CT
scanner, and they proposed a similar joint venture for the
purchase of two CT scanners, one sophisticated and one less
sophisticated, the Agencies would be unlikely to view that joint
venture as anticompetitive, even though each hospital could
independently support the purchase of its own CT scanner.
This
conclusion would be based upon a rule of reason analysis that was
virtually identical to the one described above.
***
Hospitals that are considering high-technology or other
expensive equipment joint ventures and are unsure of the legality
of their conduct under the antitrust laws can take advantage of
the Department's expedited business review procedure for joint
ventures and information exchanges announced on December 1, 1992
(58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's
advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4
(1993).
The Agencies will respond to a business review or
29
advisory opinion request on behalf of hospitals that are
considering a high-technology joint venture within 90 days after
all necessary information is submitted.
The Department's
December 1, 1992 announcement contains specific guidance as to
the information that should be submitted.
30
3.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON HOSPITAL JOINT VENTURES INVOLVING SPECIALIZED
CLINICAL OR OTHER EXPENSIVE HEALTH CARE SERVICES
Introduction
Most hospital joint ventures to provide specialized clinical
or other expensive health care services do not create antitrust
problems.
The Agencies have never challenged an integrated joint
venture among hospitals to provide a specialized clinical or
other expensive health care service.
Many hospitals wish to enter into joint ventures to offer
these services because the development of these services involves
investments -- such as the recruitment and training of
specialized personnel -- that a single hospital may not be able
to support.
In many cases, these collaborative activities could
create procompetitive efficiencies that benefit consumers,
including the provision of services at a lower cost or the
provision of a service that would not have been provided absent
the joint venture.
Sound antitrust enforcement policy
distinguishes those joint ventures that on balance benefit the
public from those that may increase prices without providing a
countervailing benefit, and seeks to prevent only those that are
harmful to consumers.
This statement of enforcement policy sets forth the Agencies'
antitrust analysis of joint ventures between hospitals to provide
specialized clinical or other expensive health care services and
includes an example of its application to such ventures.
31
It does
not include a safety zone for such ventures since the Agencies
believe that they must acquire more expertise in evaluating the
cost of, demand for, and potential benefits from such joint
ventures before they can articulate a meaningful safety zone.
The absence of a safety zone for such collaborative activities
does not imply that they create any greater antitrust risk than
other types of collaborative activities.
A.
The Agencies' Analysis Of Hospital Joint Ventures Involving
Specialized Clinical Or Other Expensive Health Care Services
The Agencies apply a rule of reason analysis in their
antitrust review of hospital joint ventures involving specialized
clinical or other expensive health care services.9
The objective
of this analysis is to determine whether the joint venture may
reduce competition substantially, and if it might, whether it is
likely to produce procompetitive efficiencies that outweigh its
anticompetitive potential.
This analysis is flexible and takes
into account the nature and effect of the joint venture, the
characteristics of the services involved and of the hospital
industry generally, and the reasons for, and purposes of, the
9
This statement assumes that the joint venture is not likely
merely to restrict competition and decrease output. For example,
if two hospitals that both profitably provide open heart surgery
and a burn unit simply agree without entering into an integrated
joint venture that in the future each of the services will be
offered exclusively at only one of the hospitals, the agreement
would be viewed as an illegal market allocation.
32
venture.
It also allows for consideration of efficiencies that
will result from the venture.
The steps involved in a rule of
reason analysis are set forth below.10
Step one:
Define the relevant market.
The rule of reason
analysis first identifies the service that is produced through
the joint venture.
The relevant product and geographic markets
that include the service are then properly defined.
This process
seeks to identify any other provider that could offer a service
that patients or physicians generally would consider a good
substitute for that provided by the joint venture.
Thus, if a
joint venture were to produce intensive care neonatology
services, the relevant market would include only other neonatal
intensive care nurseries that patients or physicians would view
as reasonable alternatives.
Step two:
Evaluate the competitive effects of the venture.
This step begins with an analysis of the structure of the
relevant market.
If many providers compete with the joint
venture, competitive harm is unlikely and the analysis would
continue with step four described below.
If the structural analysis of the relevant market showed that
the joint venture would eliminate an existing or potentially
viable competing provider of a service and that there were few
10
Many joint venturers that could provide substantial
efficiencies also may present little likelihood of competitive
harm. Where it is clear initially that any joint venture
presents little likelihood of competitive harm, it will not be
necessary to complete all steps in the analysis to conclude that
the joint venture should not be challenged. See note 7, above.
33
competing providers of that service, or that cooperation in the
joint venture market might spill over into a market in which the
parties to the joint venture are competitors, it then would be
necessary to assess the extent of the potential anticompetitive
effects of the joint venture.
In addition to the number and size
of competing providers, factors that could restrain the ability
of the joint venture to act anticompetitively either unilaterally
or through collusive agreements with other providers would
include:
(1) characteristics of the market that make
anticompetitive coordination unlikely; (2) the likelihood that
others would enter the market; and (3) the effects of government
regulation.
The extent to which the joint venture restricts competition
among the hospitals participating in the venture is evaluated
during this step.
In some cases, a joint venture to provide a
specialized clinical or other expensive health care service may
not substantially limit competition.
For example, if the only
two hospitals providing primary and secondary acute care
inpatient services in a relevant geographic market for such
services were to form a joint venture to provide a tertiary
service, they would continue to compete on primary and secondary
services.
Because the geographic market for a tertiary service
may in certain cases be larger than the geographic market for
34
primary or secondary services, the hospitals may also face
substantial competition for the joint-ventured tertiary
service.11
Step three:
efficiencies.
Evaluate the impact of procompetitive
This step requires an examination of the joint
venture's potential to create procompetitive efficiencies, and
the balancing of these efficiencies against any potential
anticompetitive effects.
The greater the venture's likely
anticompetitive effects, the greater must be the venture's likely
efficiencies.
In certain circumstances, efficiencies can be
substantial because of the need to spread the cost of the
investment associated with the recruitment and training of
personnel over a large number of patients and the potential for
improvement in quality to occur as providers gain experience and
skill from performing a larger number of procedures.
In the case
of certain specialized clinical services, such as open heart
surgery, the joint venture may permit the program to generate
sufficient patient volume to meet well-accepted minimum standards
for assuring quality and patient safety.
Step four:
Evaluate collateral agreements.
This step
examines whether the joint venture includes collateral agreements
or conditions that unreasonably restrict competition and are
unlikely to contribute significantly to the legitimate purposes
11
If steps one and two reveal no competitive concerns with
the joint venture, step three is unnecessary, and the analysis
continues with step four described below.
35
of the joint venture.
The Agencies will examine whether the
collateral agreements are reasonably necessary to achieve the
efficiencies sought by the venture.
For example, if the
participants in a joint venture to provide highly sophisticated
oncology services were to agree on the prices to be charged for
all radiology services regardless of whether the services are
provided to patients undergoing oncology radiation therapy, this
collateral agreement as to radiology services for non-oncology
patients would be unnecessary to achieve the benefits of the
sophisticated oncology joint venture.
Although the joint venture
itself would be legal, the collateral agreement would not be
legal and would be subject to challenge.
B.
Example -- Hospital Joint Venture For New Specialized
Clinical Service Not Involving Purchase Of High-Technology Or
Other Expensive Health Care Equipment
Midvale has a population of about 75,000, and is
geographically isolated in a rural part of its state.
Midvale
has two general acute care hospitals, Community Hospital and
Religious Hospital, each of which performs a mix of basic
primary, secondary, and some tertiary care services.
The two
hospitals have largely non-overlapping medical staffs.
Neither
hospital currently offers open-heart surgery services, nor has
plans to do so on its own.
Local residents, physicians,
employers, and hospital managers all believe that Midvale has
sufficient demand to support one local open-heart surgery unit.
The two hospitals in Midvale propose a joint venture whereby
they will share the costs of recruiting a cardiac surgery team
36
and establishing an open-heart surgery program, to be located at
one of the hospitals.
Patients will be referred to the program
from both hospitals, who will share expenses and revenues of the
program.
The hospitals' agreement protects against exchanges of
competitively sensitive information.
As stated above, the Agencies would analyze such a joint
venture under a rule of reason.
The first step of the rule of
reason analysis is defining the relevant product and geographic
markets.
The relevant product market in this case is open-heart
surgery services, because there are no reasonable alternatives
for patients needing such surgery.
The relevant geographic
market may be limited to Midvale.
Although patients now travel
to distant hospitals for open-heart surgery, it is significantly
more costly for patients to obtain surgery from them than from a
provider located in Midvale.
Physicians, patients, and
purchasers believe that after the open heart surgery program is
operational, most Midvale residents will choose to receive these
services locally.
The second step is determining the competitive impact of the
joint venture.
Here, the joint venture does not eliminate any
existing competition, because neither of the two hospitals
previously was providing open-heart surgery.
Nor does the joint
venture eliminate any potential competition, because there is
insufficient patient volume for more than one viable open-heart
37
surgery program.
Thus, only one such program could exist in
Midvale, regardless of whether it was established unilaterally or
through a joint venture.
Normally, the third step in the rule of reason analysis would
be to assess the procompetitive effects of, and likely
efficiencies associated with, the joint venture.
In this
instance, this step is unnecessary, since the analysis has
concluded under step two that the joint venture will not result
in any significant anticompetitive effects.
The final step of the analysis is to determine whether the
joint venture has any collateral agreements or conditions that
reduce competition and are not reasonably necessary to achieve
the efficiencies sought by the venture.
The joint venture does
not appear to involve any such agreements or conditions; it does
not eliminate or reduce competition between the two hospitals for
any other services, or impose any conditions on use of the openheart surgery program that would affect other competition.
Because the joint venture described above is unlikely
significantly to reduce competition among hospitals for openheart surgery services, and will in fact increase the services
available to consumers, the Agencies would view this joint
venture favorably under a rule of reason analysis.
***
Hospitals that are considering specialized clinical or other
expensive health care services joint ventures and are unsure of
the legality of their conduct under the antitrust laws can take
38
advantage of the Department of Justice's expedited business
review procedure announced on December 1, 1992 (58 Fed. Reg. 6132
(1993)) or the Federal Trade Commission's advisory opinion
procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993).
The Agencies
will respond to a business review or advisory opinion request on
behalf of hospitals that are considering jointly providing such
services within 90 days after all necessary information is
submitted.
The Department's December 1, 1992 announcement
contains specific guidance as to the information that should be
submitted.
39
4.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON PROVIDERS' COLLECTIVE PROVISION OF
NON-FEE-RELATED INFORMATION TO
PURCHASERS OF HEALTH CARE SERVICES
Introduction
The collective provision of non-fee-related information by
competing health care providers to a purchaser in an effort to
influence the terms upon which the purchaser deals with the
providers does not necessarily raise antitrust concerns.
Generally, providers' collective provision of certain types of
information to a purchaser is likely either to raise little risk
of anticompetitive effects or to provide procompetitive benefits.
This statement sets forth an antitrust safety zone that
describes providers' collective provision of non-fee-related
information that will not be challenged by the Agencies under the
antitrust laws, absent extraordinary circumstances.12
It also
describes conduct that is expressly excluded from the antitrust
safety zone.
12
This statement addresses only providers' collective
activities. As a general proposition, providers acting
individually may provide any information to any purchaser without
incurring liability under federal antitrust law. This statement
also does not address the collective provision of information
through an integrated joint venture or the exchange of
information that necessarily occurs among providers involved in
legitimate joint venture activities. Those activities generally
do not raise antitrust concerns.
40
A.
Antitrust Safety Zone: Providers' Collective Provision Of
Non-Fee-Related Information That Will Not Be Challenged,
Absent Extraordinary Circumstances, By The Agencies
Providers' collective provision of underlying medical data
that may improve purchasers' resolution of issues relating to the
mode, quality, or efficiency of treatment is unlikely to raise
any significant antitrust concern and will not be challenged by
the Agencies, absent extraordinary circumstances.
Thus, the
Agencies will not challenge, absent extraordinary circumstances,
a medical society's collection of outcome data from its members
about a particular procedure that they believe should be covered
by a purchaser and the provision of such information to the
purchaser.
The Agencies also will not challenge, absent
extraordinary circumstances, providers' development of suggested
practice parameters--standards for patient management developed
to assist providers in clinical decisionmaking--that also may
provide useful information to patients, providers, and
purchasers.
Because providers' collective provision of such
information poses little risk of restraining competition and may
help in the development of protocols that increase quality and
efficiency, the Agencies will not challenge such activity, absent
extraordinary circumstances.
In the course of providing underlying medical data, providers
may collectively engage in discussions with purchasers about the
scientific merit of that data.
However, the antitrust safety
zone excludes any attempt by providers to coerce a purchaser's
decisionmaking by implying or threatening a boycott of any plan
41
that does not follow the providers' joint recommendation.
Providers who collectively threaten to or actually refuse to deal
with a purchaser because they object to the purchaser's
administrative, clinical, or other terms governing the provision
of services run a substantial antitrust risk.
For example,
providers' collective refusal to provide X-rays to a purchaser
that seeks them before covering a particular treatment regimen
would constitute an antitrust violation.
Similarly, providers'
collective attempt to force purchasers to adopt recommended
practice parameters by threatening to or actually boycotting
purchasers that refuse to accept their joint recommendation also
would risk antitrust challenge.
***
Competing providers who are considering jointly providing
non-fee-related information to a purchaser and are unsure of the
legality of their conduct under the antitrust laws can take
advantage of the Department of Justice's expedited business
review procedure announced on December 1, 1992 (58 Fed. Reg. 6132
(1993)) or the Federal Trade Commission's advisory opinion
procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993).
The Agencies
will respond to a business review or advisory opinion request on
behalf of providers who are considering jointly providing such
information within 90 days after all necessary information is
submitted.
The Department's December 1, 1992 announcement
contains specific guidance as to the information that should be
submitted.
42
5.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON PROVIDERS' COLLECTIVE PROVISION
OF FEE-RELATED INFORMATION TO
PURCHASERS OF HEALTH CARE SERVICES
Introduction
The collective provision by competing health care providers
to purchasers of health care services of factual information
concerning the fees charged currently or in the past for the
providers' services, and other factual information concerning the
amounts, levels, or methods of fees or reimbursement, does not
necessarily raise antitrust concerns.
With reasonable
safeguards, providers' collective provision of this type of
factual information to a purchaser of health care services may
provide procompetitive benefits and raise little risk of
anticompetitive effects.
This statement sets forth an antitrust safety zone that
describes collective provision of fee-related information that
will not be challenged by the Agencies under the antitrust laws,
absent extraordinary circumstances.13
It also describes types of
conduct that are expressly excluded from the antitrust safety
13
This statement addresses only providers' collective
activities. As a general proposition, providers acting
individually may provide any information to any purchaser without
incurring liability under federal antitrust law. This statement
also does not address the collective provision of information
through an integrated joint venture or the exchange of
information that necessarily occurs among providers involved in
legitimate joint venture activities. Those activities generally
do not raise antitrust concerns.
43
zone, some clearly unlawful, and others that may be lawful
depending on the circumstances.
A.
Antitrust Safety Zone: Providers' Collective Provision Of
Fee-Related Information That Will Not Be Challenged, Absent
Extraordinary Circumstances, By The Agencies
Providers' collective provision to purchasers of health care
services of factual information concerning the providers' current
or historical fees or other aspects of reimbursement, such as
discounts or alternative reimbursement methods accepted
(including capitation arrangements, risk-withhold fee
arrangements, or use of all-inclusive fees), is unlikely to raise
significant antitrust concern and will not be challenged by the
Agencies, absent extraordinary circumstances.
Such factual
information can help purchasers efficiently develop reimbursement
terms to be offered to providers and may be useful to a purchaser
when provided in response to a request from the purchaser or at
the initiative of providers.
In assembling information to be collectively provided to
purchasers, providers need to be aware of the potential antitrust
consequences of information exchanges among competitors.
The
principles expressed in the Agencies' statement on provider
participation in exchanges of price and cost information are
applicable in this context.
Accordingly, in order to qualify for
this safety zone, the collection of information to be provided to
purchasers must satisfy the following conditions:
44
(1)
the collection is managed by a third party (e.g., a
purchaser, government agency, health care consultant,
academic institution, or trade association);
(2)
although current fee-related information may be provided
to purchasers, any information that is shared among or
is available to the competing providers furnishing the
data must be more than three months old; and
(3)
for any information that is available to the providers
furnishing data, there are at least five providers
reporting data upon which each disseminated statistic is
based, no individual provider's data may represent more
than 25 percent on a weighted basis of that statistic,
and any information disseminated must be sufficiently
aggregated such that it would not allow recipients to
identify the prices charged by any individual provider.
The conditions that must be met for an information exchange
among providers to fall within the antitrust safety zone are
intended to ensure that an exchange of price or cost data is not
used by competing providers for discussion or coordination of
provider prices or costs.
They represent a careful balancing of
a provider's individual interest in obtaining information useful
in adjusting the prices it charges or the wages it pays in
response to changing market conditions against the risk that the
exchange of such information may permit competing providers to
communicate with each other regarding a mutually acceptable level
of prices for health care services or compensation for employees.
B.
The Agencies' Analysis Of Providers' Collective Provision Of
Fee-Related Information That Falls Outside The Antitrust
Safety Zone
The safety zone set forth in this policy statement does not
apply to collective negotiations between unintegrated providers
and purchasers in contemplation or in furtherance of any
45
agreement among the providers on fees or other terms or aspects
of reimbursement,14 or to any agreement among unintegrated
providers to deal with purchasers only on agreed terms.
Providers also may not collectively threaten, implicitly or
explicitly, to engage in a boycott or similar conduct, or
actually undertake such a boycott or conduct, to coerce any
purchaser to accept collectively-determined fees or other terms
or aspects of reimbursement.
These types of conduct likely would
violate the antitrust laws and, in many instances, might be per
se illegal.
Also excluded from the safety zone is providers' collective
provision of information or views concerning prospective feerelated matters.
In some circumstances, the collective provision
of this type of fee-related information also may be helpful to a
purchaser and, as long as independent decisions on whether to
accept a purchaser's offer are truly preserved, may not raise
antitrust concerns.
However, in other circumstances, the
collective provision of prospective fee-related information or
views may evidence or facilitate an agreement on prices or other
competitively significant terms by the competing providers.
It
also may exert a coercive effect on the purchaser by implying or
threatening a collective refusal to deal on terms other than
those proposed, or amount to an implied threat to boycott any
plan that does not follow the providers' collective proposal.
14
Whether communications between providers and purchasers
will amount to negotiations depends on the nature and context of
the communications, not solely the number of such communications.
46
The Agencies recognize the need carefully to distinguish
possibly procompetitive collective provision of prospective feerelated information or views from anticompetitive situations that
involve unlawful price agreements, boycott threats, refusals to
deal except on collectively determined terms, collective
negotiations, or conduct that signals or facilitates collective
price terms.
Therefore, the collective provision of such
prospective fee-related information or views will be assessed on
a case-by-case basis.
In their case-by-case analysis, the
Agencies will look at all the facts and circumstances surrounding
the provision of the information, including, but not limited to,
the nature of the information provided, the nature and extent of
the communications among the providers and between the providers
and the purchaser, the rationale for providing the information,
and the nature of the market in which the information is
provided.
In addition, because the collective provision of prospective
fee-related information and views can easily lead to or accompany
unlawful collective negotiations, price agreements, or the other
types of collective conduct noted above, providers need to be
aware of the potential antitrust consequences of information
exchanges among competitors in assembling information or views
concerning prospective fee-related matters.
Consequently, such
protections as the use of a third party to manage the collection
of information and views, and the adoption of mechanisms to
assure that the information is not disseminated or used in a
47
manner that facilitates unlawful agreements or coordinated
conduct by the providers, likely would reduce antitrust concerns.
***
Competing providers who are considering collectively
providing fee-related information to purchasers, and are unsure
of the legality of their conduct under the antitrust laws, can
take advantage of the Department of Justice's expedited business
review procedure announced on December 1, 1992 (58 Fed. Reg. 6132
(1993)) or the Federal Trade Commission's advisory opinion
procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993).
The Agencies
will respond to a business review or advisory opinion request on
behalf of providers who are considering collectively providing
fee-related information within 90 days after all necessary
information is submitted.
The Department's December 1, 1992
announcement contains specific guidance as to the information
that should be submitted.
48
6.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON PROVIDER PARTICIPATION IN EXCHANGES OF
PRICE AND COST INFORMATION
Introduction
Participation by competing providers in surveys of prices
for health care services, or surveys of salaries, wages or
benefits of personnel, does not necessarily raise antitrust
concerns.
In fact, such surveys can have significant benefits
for health care consumers.
Providers can use information
derived from price and compensation surveys to price their
services more competitively and to offer compensation that
attracts highly qualified personnel.
Purchasers can use price
survey information to make more informed decisions when buying
health care services.
Without appropriate safeguards, however,
information exchanges among competing providers may facilitate
collusion or otherwise reduce competition on prices or
compensation, resulting in increased prices, or reduced quality
and availability of health care services.
A collusive
restriction on the compensation paid to health care employees,
for example, could adversely affect the availability of health
care personnel.
This statement sets forth an antitrust safety zone that
describes exchanges of price and cost information among
providers that will not be challenged by the Agencies under the
antitrust laws, absent extraordinary circumstances.
49
It also
briefly describes the Agencies' antitrust analysis of information
exchanges that fall outside the antitrust safety
A.
zone.
Antitrust Safety Zone: Exchanges Of Price And Cost
Information Among Providers That Will Not Be Challenged,
Absent Extraordinary Circumstances, By The Agencies
The Agencies will not challenge, absent extraordinary
circumstances, provider participation in written surveys of
(a) prices for health care services,15 or (b) wages, salaries, or
benefits of health care personnel, if the following conditions
are satisfied:
(1)
the survey is managed by a third-party (e.g., a
purchaser, government agency, health care consultant,
academic institution, or trade association);
(2)
the information provided by survey participants is based
on data more than 3 months old; and
(3)
there are at least five providers reporting data upon
which each disseminated statistic is based, no
individual provider's data represents more than
25 percent on a weighted basis of that statistic, and
any information disseminated is sufficiently aggregated
such that it would not allow recipients to identify the
prices charged or compensation paid by any particular
provider.
The conditions that must be met for an information exchange
among providers to fall within the antitrust safety zone are
intended to ensure that an exchange of price or cost data is not
used by competing providers for discussion or coordination of
provider prices or costs.
They represent a careful balancing of
a provider's individual interest in obtaining information useful
15
The "prices" at which providers offer their services to
purchasers can take many forms, including billed charges for
individual services, discounts off billed charges, or per diem,
capitated, or diagnosis related group rates.
50
in adjusting the prices it charges or the wages it pays in
response to changing market conditions against the risk that the
exchange of such information may permit competing providers to
communicate with each other regarding a mutually acceptable level
of prices for health care services or compensation for employees.
B.
The Agencies' Analysis of Provider Exchanges Of Information
That Fall Outside The Antitrust Safety Zone
Exchanges of price and cost information that fall outside
the antitrust safety zone generally will be evaluated to
determine whether the information exchange may have an
anticompetitive effect that outweighs any procompetitive
justification for the exchange.
Depending on the circumstances,
public, non-provider initiated surveys may not raise competitive
concerns.
Such surveys could allow purchasers to have useful
information that they can use for procompetitive purposes.
Exchanges of future prices for provider services or future
compensation of employees are very likely to be considered
anticompetitive.
If an exchange among competing providers of
price or cost information results in an agreement among
competitors as to the prices for health care services or the
wages to be paid to health care employees, that agreement will be
considered unlawful per se.
***
Competing providers that are considering participating in a
survey of price or cost information and are unsure of the
legality of their conduct under the antitrust laws can take
51
advantage of the Department's expedited business review procedure
announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the
Federal Trade Commission's advisory opinion procedure contained
at 16 C.F.R. §§ 1.1-1.4 (1993).
The Agencies will respond to a
business review or advisory opinion request on behalf of
providers who are considering participating in a survey of price
or cost information within 90 days after all necessary
information is submitted.
The Department's December 1, 1992
announcement contains specific guidance as to the information
that should be submitted.
52
7.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON JOINT PURCHASING ARRANGEMENTS
AMONG HEALTH CARE PROVIDERS
Introduction
Most joint purchasing arrangements among hospitals or other
health care providers do not raise antitrust concerns.
Such
collaborative activities typically allow the participants to
achieve efficiencies that will benefit consumers.
Joint
purchasing arrangements usually involve the purchase of a
product or service used in providing the ultimate package of
health care services or products sold by the participants.
Examples include the purchase of laundry or food services by
hospitals, the purchase of computer or data processing services
by hospitals or other groups of providers, and the purchase of
prescription drugs and other pharmaceutical products.
Through
such joint purchasing arrangements, the participants frequently
can obtain volume discounts, reduce transaction costs, and have
access to consulting advice that may not be available to each
participant on its own.
Joint purchasing arrangements are unlikely to raise
antitrust concerns unless (1) the arrangement accounts for so
large a portion of the purchases of a product or service that it
can effectively exercise market power16 in the purchase of the
product or service, or (2) the products or services being
16
In the case of a purchaser, this is the power to drive the
price of goods or services purchased below competitive levels.
53
purchased jointly account for so large a proportion of the total
cost of the services being sold by the participants that the
joint purchasing arrangement may facilitate price fixing or
otherwise reduce competition.
If neither factor is present, the
joint purchasing arrangement will not present competitive
concerns.17
This statement sets forth an antitrust safety zone that
describes joint purchasing arrangements among health care
providers that will not be challenged, absent extraordinary
circumstances, by the Agencies under the antitrust laws.
It also
describes factors that mitigate any competitive concerns with
joint purchasing arrangements that fall outside the antitrust
safety zone.18
A.
Antitrust Safety Zone: Joint Purchasing Arrangements Among
Health Care Providers That Will Not Be Challenged, Absent
Extraordinary Circumstances, By The Agencies
The Agencies will not challenge, absent extraordinary
circumstances, any joint purchasing arrangement among health
care providers where two conditions are present: (1) the
purchases account for less than 35 percent of the total sales of
17
An agreement among purchasers that simply fixes the price
that each purchaser will pay or offer to pay for a product or
service is not a legitimate joint purchasing arrangement and is a
per se antitrust violation. Legitimate joint purchasing
arrangements provide some integration of purchasing functions to
achieve efficiencies.
18
This statement applies to purchasing arrangements through
which the participants acquire products or services for their own
use, not arrangements in which the participants are jointly
investing in equipment or providing a service. Joint ventures
involving investment in equipment and the provision of services
are discussed in separate policy statements.
54
the purchased product or service in the relevant market; and
(2) the cost of the products and services purchased jointly
accounts for less than 20 percent of the total revenues from all
products or services sold by each competing participant in the
joint purchasing arrangement.
The first condition compares the purchases accounted for by
a joint purchasing arrangement to the total purchases of the
purchased product or service in the relevant market.
Its purpose
is to determine whether the joint purchasing arrangement might be
able to drive down the price of the product or service being
purchased below competitive levels.
For example, a joint
purchasing arrangement may account for all or most of the
purchases of laundry services by hospitals in a particular
market, but represent less than 35 percent of the purchases of
all commercial laundry services in that market.
Unless there
are special costs that cannot be easily recovered associated
with providing laundry services to hospitals, such a purchasing
arrangement is not likely to force prices below competitive
levels.
The same principle applies to joint purchasing
arrangements for food services, data processing, and many other
products and services.
The second condition addresses any possibility that a joint
purchasing arrangement might result in standardized costs, thus
facilitating price fixing or otherwise having anticompetitive
effects.
This condition applies only where some or all of the
participants are direct competitors.
55
For example, if a
nationwide purchasing cooperative limits its membership to one
hospital in each geographic area, there is not likely to be any
concern about reduction of competition among its members.
Even
where a purchasing arrangement's membership includes hospitals
or other health care providers that compete with one another,
the arrangement is not likely to facilitate collusion if the
goods and services being purchased jointly account for a small
fraction of the final price of the services provided by the
participants.
In the health care field, it may be difficult to
determine the specific final service in which the jointly
purchased products are used, as well as the price at which that
final service is sold.19
Therefore, the Agencies will examine
whether the cost of the products or services being purchased
jointly accounts, in the aggregate, for less than 20 percent of
the total revenues from all health care services of each
competing participant.
B.
Factors Mitigating Competitive Concerns With Joint Purchasing
Arrangements That Fall Outside The Antitrust Safety Zone
Joint purchasing arrangements among hospitals or other
health care providers that fall outside the antitrust safety zone
do not necessarily raise antitrust concerns.
There are several
safeguards that joint purchasing arrangements can adopt to
mitigate concerns that might otherwise arise.
19
First, antitrust
This especially is true because some large purchasers
negotiate prices with hospitals and other providers that
encompass a group of services, while others pay separately for
each service.
56
concern is lessened if members are not required to use the
arrangement for all their purchases of a particular product or
service.
Members can, however, be asked to commit to purchase a
voluntarily specified amount through the arrangement so that a
volume discount or other favorable contract can be negotiated.
Second, where negotiations are conducted on behalf of the joint
purchasing arrangement by an independent employee or agent who is
not also an employee of a participant, antitrust risk is lowered.
Third, the likelihood of anticompetitive communications is
lessened where communications between the purchasing group and
each individual participant are kept confidential, and not
discussed with, or disseminated to, other participants.
These safeguards will reduce substantially, if not
completely eliminate, use of the purchasing arrangement as a
vehicle for discussing and coordinating the prices of health
care services offered by the participants.20
The adoption of
these safeguards also will help demonstrate that the joint
purchasing arrangement is intended to achieve economic
efficiencies rather than to serve an anticompetitive purpose.
Where there appear to be significant efficiencies from a joint
purchasing arrangement, the Agencies will not challenge the
arrangement absent substantial risk of anticompetitive effects.
20
Obviously, if the members of a legitimate purchasing group
engage in price fixing or other collusive anticompetitive conduct
as to services sold by the participants, whether through the
arrangement or independently, they remain subject to antitrust
challenge.
57
The existence of a large number and variety of purchasing
groups in the health care field suggests that entry barriers to
forming new groups currently are not great.
Thus, in most
circumstances at present, it is not necessary to open a joint
purchasing arrangement to all competitors in the market.
However, if some competitors excluded from the arrangement are
unable to compete effectively without access to the arrangement,
and competition is thereby harmed, antitrust concerns will exist.
C.
Example -- Joint Purchasing Arrangement Involving Both
Hospitals In Rural Community That The Agencies Would Not
Challenge
Smalltown is the county seat of Rural County.
There are two
general acute care hospitals, County Hospital ("County") and
Smalltown Medical Center ("SMC"), both located in Smalltown.
The
nearest other hospitals are located in Big City, about 100 miles
from Smalltown.
County and SMC propose to join a joint venture being formed
by several of the hospitals in Big City through which they will
purchase various hospital supplies -- such as bandages,
antiseptics, surgical gowns, and masks.
The joint venture will
likely be the vehicle for the purchase of most such products by
the Smalltown hospitals, but under the joint venture agreement,
both retain the option to purchase supplies independently.
The joint venture will be an independent corporation, jointly
owned by the participating hospitals.
It will purchase the
supplies needed by the hospitals and then resell them to the
hospitals at average variable cost plus a reasonable return on
58
capital.
The joint venture will periodically solicit from each
participating hospital its expected needs for various hospital
supplies, and negotiate the best terms possible for the combined
purchases.
It will also purchase supplies for its member
hospitals on an ad hoc basis.
Competitive Analysis
The first issue is whether the proposed joint purchasing
arrangement would fall within the safety zone set forth in this
policy statement.
In order to make this determination, the
Agencies would first inquire whether the joint purchases would
account for less than 35 percent of the total sales of the
purchased products in the relevant markets for the sales of those
products.
Here, the relevant hospital supply markets are likely
to be national or at least regional in scope.
Thus, while County
and SMC might well account for more than 35 percent of the total
sales of many hospital supplies in Smalltown or Rural County,
they and the other hospitals in Big City that will participate in
the arrangement together would likely not account for significant
percentages of sales in the actual relevant markets.
Thus, the
first criterion for inclusion in the safety zone is likely to be
satisfied.
The Agencies would then inquire whether the supplies to be
purchased jointly account for less than 20 percent of the total
revenues from all products and services sold by each of the
competing hospitals that participate in the arrangement.
In this
case, County and SMC are competing hospitals, but this second
59
criterion for inclusion in the safety zone is also likely to be
satisfied, and the Agencies would not challenge the joint
purchasing arrangement.
***
Hospitals or other health care providers that are
considering joint purchasing arrangements and are unsure of the
legality of their conduct under the antitrust laws can take
advantage of the Department of Justice's expedited business
review procedure for joint ventures and information exchanges
announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the
Federal Trade Commission's advisory opinion procedure contained
at 16 C.F.R. §§ 1.1-1.4 (1993).
The Agencies will respond to a
business review or advisory opinion request on behalf of health
care providers considering a joint purchasing arrangement within
90 days after all necessary information is submitted.
The
Department's December 1, 1992 announcement contains specific
guidance as to the information that should be submitted.
60
8.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL
TRADE COMMISSION ENFORCEMENT POLICY
ON PHYSICIAN NETWORK JOINT VENTURES
Introduction
In recent years, health plans and other purchasers of health
care services have developed a variety of managed care programs
that seek to reduce the costs and assure the quality of health
care services.
Many physicians and physician groups have
organized physician network joint ventures, such as individual
practice associations ("IPAs"), preferred provider organizations
("PPOs"), and other arrangements to market their services to
these plans.21
Typically, such networks contract with the plans
to provide physician services to plan subscribers at
predetermined prices, and the physician participants in the
networks agree to controls aimed at containing costs and assuring
the appropriate and efficient provision of high quality physician
services.
By developing and implementing mechanisms that
encourage physicians to collaborate in practicing efficiently as
part of the network, many physician network joint ventures
promise significant procompetitive benefits for consumers of
health care services.
21
An IPA or PPO typically provides medical services to the
subscribers of health plans but does not act as their insurer.
In addition, an IPA or PPO does not require complete integration
of the medical practices of its physician participants. Such
physicians typically continue to compete fully for patients who
are enrolled in health plans not served by the IPA or PPO, or who
have indemnity insurance or pay for the physician's services
directly "out of pocket."
61
As used in this statement, a physician network joint venture
is a physician-controlled venture in which the network's
physician participants collectively agree on prices or pricerelated terms and jointly market their services.22
Other types
of health care network joint ventures are not directly addressed
by this statement.23
This statement of enforcement policy describes the Agencies’
antitrust analysis of physician network joint ventures, and
presents several examples of its application to specific
hypothetical physician network joint ventures.
Before describing
the general antitrust analysis, the statement sets forth
antitrust safety zones that describe physician network joint
ventures that are highly unlikely to raise substantial
competitive concerns, and therefore will not be challenged by the
22
Although this statement refers to IPAs and PPOs as
examples of physician network joint ventures, the Agencies'
competitive analysis focuses on the substance of such
arrangements, not on their formal titles. This policy statement
applies, therefore, to all entities that are substantively
equivalent to the physician network joint ventures described in
this statement.
23
The physician network joint ventures discussed in this
statement are one type of the multiprovider network joint
ventures discussed below in the Agencies' Statement Of
Enforcement Policy On Multiprovider Networks. That statement
also covers other types of networks, such as networks that
include both hospitals and physicians, and networks involving
non-physician health professionals. In addition, that statement
(see infra pp. 106-141), and Example 7 of this statement, address
networks that do not include agreements among competitors on
prices or price-related terms, through use of various “messenger
model” arrangements. Many of the issues relating to physician
network joint ventures are the same as those that arise and are
addressed in connection with multiprovider networks generally,
and the analysis often will be very similar for all such
arrangements.
62
Agencies under the antitrust laws, absent extraordinary
circumstances.
The Agencies emphasize that merely because a physician
network joint venture does not come within a safety zone in no
way indicates that it is unlawful under the antitrust laws.
On
the contrary, such arrangements may be procompetitive and lawful,
and many such arrangements have received favorable business
review letters or advisory opinions from the Agencies.24
The
safety zones use a few factors that are relatively easy to apply,
to define a category of ventures for which the Agencies presume
no anticompetitive harm, without examining competitive conditions
in the particular case.
A determination about the lawfulness of
physician network joint ventures that fall outside the safety
24
For example, the Agencies have approved a number of nonexclusive physician or provider networks in which the percentage
of participating physicians or providers in the market exceeded
the 30% criterion of the safety zone. See, e.g., Letter from
Anne K. Bingaman, Assistant Attorney General, Department of
Justice, to John F. Fischer (Oklahoma Physicians Network, Inc.)
(Jan. 17, 1996) (“substantially more” than 30% of several
specialties in a number of local markets, including more than 50%
in one specialty); Letter from Anne K. Bingaman to Melissa J.
Fields (Dermnet, Inc.) (Dec. 5, 1995) (44% of board-certified
dermatologists); Letter from Anne K. Bingaman to Dee Hartzog
(International Chiropractor’s Association of California) (Oct.
27, 1994) (up to 50% of chiropractors); Letter from Mark
Horoschak, Assistant Director, Federal Trade Commission, to
Stephen P. Nash (Eastern Ohio Physicians Organization) (Sept. 28,
1995) (safety zone’s 30% criterion exceeded for primary care
physicians by a small amount, and for certain subspecialty fields
“to a greater extent”); Letter from Mark Horoschak to John A.
Cook (Oakland Physician Network) (Mar. 28, 1995) (multispecialty
network with 44% of physicians in one specialty).
63
zones must be made on a case-by-case basis according to general
antitrust principles and the more specific analysis described in
this statement.
A.
Antitrust Safety Zones
This section describes those physician network joint ventures
that will fall within the antitrust safety zones designated by
the Agencies.
The antitrust safety zones differ for "exclusive"
and "non-exclusive" physician network joint ventures.
In an
"exclusive" venture, the network's physician participants are
restricted in their ability to, or do not in practice,
individually contract or affiliate with other network joint
ventures or health plans.
In a "non-exclusive" venture, on the
other hand, the physician participants in fact do, or are
available to, affiliate with other networks or contract
individually with health plans.
This section explains how the
Agencies will determine whether a physician network joint venture
is exclusive or non-exclusive.
It also illustrates types of
arrangements that can involve the sharing of substantial
financial risk among a network's physician participants, which is
necessary for a network to come within the safety zones.
1.
Exclusive Physician Network Joint Ventures That The
Agencies Will Not Challenge, Absent Extraordinary
Circumstances
The Agencies will not challenge, absent extraordinary
circumstances, an exclusive physician network joint venture whose
physician participants share substantial financial risk and
64
constitute 20 percent or less of the physicians25 in each
physician specialty with active hospital staff privileges who
practice in the relevant geographic market.26
In relevant
markets with fewer than five physicians in a particular
specialty, an exclusive physician network joint venture otherwise
qualifying for the antitrust safety zone may include one
physician from that specialty, on a non-exclusive basis, even
though the inclusion of that physician results in the venture
consisting of more than 20 percent of the physicians in that
specialty.
2.
Non-Exclusive Physician Network Joint Ventures That The
Agencies Will Not Challenge, Absent Extraordinary
Circumstances
The Agencies will not challenge, absent extraordinary
circumstances, a non-exclusive physician network joint venture
whose physician participants share substantial financial risk and
constitute 30 percent or less of the physicians in each physician
specialty with active hospital staff privileges who practice in
the relevant geographic market.
In relevant markets with fewer
than four physicians in a particular specialty, a non-exclusive
physician network joint venture otherwise qualifying for the
antitrust safety zone may include one physician from that
25
For purposes of the antitrust safety zones, in
calculating the number of physicians in a relevant market and the
number of physician participants in a physician network joint
venture, each physician ordinarily will be counted individually,
whether the physician practices in a group or solo practice.
26
Generally, relevant geographic markets for the delivery
of physician services are local.
65
specialty, even though the inclusion of that physician results in
the venture consisting of more than 30 percent of the physicians
in that specialty.
3.
Indicia Of Non-Exclusivity
Because of the different market share thresholds for the
safety zones for exclusive and non-exclusive physician network
joint ventures, the Agencies caution physician participants in a
non-exclusive physician network joint venture to be sure that the
network is non-exclusive in fact and not just in name.
The
Agencies will determine whether a physician network joint venture
is exclusive or non-exclusive by its physician participants'
activities, and not simply by the terms of the contractual
relationship.
In making that determination, the Agencies will
examine the following indicia of non-exclusivity, among others:
(1)
that viable competing networks or managed care plans
with adequate physician participation currently exist in
the market;
(2)
that physicians in the network actually individually
participate in, or contract with, other networks or
managed care plans, or there is other evidence of their
willingness and incentive to do so;
(3)
that physicians in the network earn substantial revenue
from other networks or through individual contracts with
managed care plans;
(4)
the absence of any indications of significant departicipation from other networks or managed care plans
in the market; and
66
(5)
the absence of any indications of coordination among the
physicians in the network regarding price or other
competitively significant terms of participation in
other networks or managed care plans.
Networks also may limit or condition physician participants’
freedom to contract outside the network in ways that fall short
of a commitment of full exclusivity.
If those provisions
significantly restrict the ability or willingness of a network’s
physicians to join other networks or contract individually with
managed care plans, the network will be considered exclusive for
purposes of the safety zones.
4.
Sharing Of Substantial Financial Risk By Physicians In A
Physician Network Joint Venture
To qualify for either antitrust safety zone, the participants
in a physician network joint venture must share substantial
financial risk in providing all the services that are jointly
priced through the network.27
The safety zones are limited to
networks involving substantial financial risk sharing not because
such risk sharing is a desired end in itself, but because it
27
Physician network joint ventures that involve both risksharing and non-risk-sharing arrangements do not fall within the
safety zones. For example, a network may have both risk-sharing
and non-risk-sharing contracts. It also may have contracts that
involve risk sharing, but not all the physicians in the network
participate in risk sharing or not all of the services are paid
for on a risk-sharing basis. The Agencies will consider each of
the network’s arrangements separately, as well as the activities
of the venture as a whole, to determine whether the joint pricing
with respect to the non-risk-sharing aspects of the venture is
appropriately analyzed under the rule of reason. See infra
Example 2. The mere presence of some risk-sharing arrangements,
however, will not necessarily result in rule of reason analysis
of the non-risk-sharing aspects of the venture.
67
normally is a clear and reliable indicator that a physician
network involves sufficient integration by its physician
participants to achieve significant efficiencies.28
Risk sharing
provides incentives for the physicians to cooperate in
controlling costs and improving quality by managing the provision
of services by network physicians.
The following are examples of some types of arrangements
through which participants in a physician network joint venture
can share substantial financial risk:29
(1)
agreement by the venture to provide services to a health
plan at a "capitated" rate;30
(2)
agreement by the venture to provide designated services
or classes of services to a health plan for a
predetermined percentage of premium or revenue from the
plan;31
28
The existence of financial risk sharing does not depend
on whether, under applicable state law, the network is considered
an insurer.
29
Physician participants in a single network need not all
be involved in the same risk-sharing arrangement within the
network to fall within the safety zones. For example, primary
care physicians may be capitated and specialists subject to a
withhold, or groups of physicians may be in separate risk pools.
30
A "capitated" rate is a fixed, predetermined payment per
covered life (the "capitation") from a health plan to the joint
venture in exchange for the joint venture's (not merely an
individual physician's) providing and guaranteeing provision of a
defined set of covered services to covered individuals for a
specified period, regardless of the amount of services actually
provided.
31
This is similar to a capitation arrangement, except that
the amount of payment to the network can vary in response to
changes in the health plan's premiums or revenues.
68
(3)
(4)
use by the venture of significant financial incentives
for its physician participants, as a group, to achieve
specified cost-containment goals. Two methods by which
the venture can accomplish this are:
(a)
withholding from all physician participants in the
network a substantial amount of the compensation
due to them, with distribution of that amount to
the physician participants based on group
performance in meeting the cost-containment goals
of the network as a whole; or
(b)
establishing overall cost or utilization targets
for the network as a whole, with the network's
physician participants subject to subsequent
substantial financial rewards or penalties based on
group performance in meeting the targets; and
agreement by the venture to provide a complex or
extended course of treatment that requires the
substantial coordination of care by physicians in
different specialities offering a complementary mix of
services, for a fixed, predetermined payment, where the
costs of that course of treatment for any individual
patient can vary greatly due to the individual patient’s
condition, the choice, complexity, or length of
treatment, or other factors.32
The Agencies recognize that new types of risk-sharing
arrangements may develop.
The preceding examples do not
foreclose consideration of other arrangements through which the
participants in a physician network joint venture may share
substantial financial risk in the provision of medical services
through the network.33
Organizers of physician networks who are
32
Such arrangements are sometimes referred to as “global
fees” or “all-inclusive case rates.” Global fee or all-inclusive
case rate arrangements that involve financial risk sharing as
contemplated by this example will require that the joint venture
(not merely an individual physician participant) assume the risk
or benefit that the treatment provided through the network may
either exceed, or cost less than, the predetermined payment.
33
The manner of dividing revenues among the network's
physician participants generally does not raise antitrust issues
so long as the competing physicians in a network (continued...)
69
uncertain whether their proposed arrangements constitute
substantial financial risk sharing for purposes of this policy
statement are encouraged to take advantage of the Agencies’
expedited business review and advisory opinion procedures.
B.
The Agencies’ Analysis Of Physician Network Joint Ventures
That Fall Outside The Antitrust Safety Zones
Physician network joint ventures that fall outside the
antitrust safety zones also may have the potential to create
significant efficiencies, and do not necessarily raise
substantial antitrust concerns.
For example, physician network
joint ventures in which the physician participants share
substantial financial risk, but which involve a higher percentage
of physicians in a relevant market than specified in the safety
zones, may be lawful if they are not anticompetitive on
balance.34
Likewise, physician network joint ventures that do
not involve the sharing of substantial financial risk also may be
lawful if the physicians’ integration through the joint venture
creates significant efficiencies and the venture, on balance, is
not anticompetitive.
share substantial financial risk. For example, capitated
networks may distribute income among their physician participants
using fee-for-service payment with a partial withhold fund to
cover the risk of having to provide more services than were
originally anticipated.
34
See infra Examples 5 and 6. Many such physician networks
have received favorable business review or advisory opinion
letters from the Agencies. The percentages used in the safety
zones define areas in which the lack of anticompetitive effects
ordinarily will be presumed.
70
The Agencies emphasize that it is not their intent to treat
such networks either more strictly or more leniently than joint
ventures in other industries, or to favor any particular
procompetitive organization or structure of health care delivery
over other forms that consumers may desire.
Rather, their goal
is to ensure a competitive marketplace in which consumers will
have the benefit of high quality, cost-effective health care and
a wide range of choices, including new provider-controlled
networks that expand consumer choice and increase competition.
1.
Determining When Agreements Among Physicians In A
Physician Network Joint Venture Are Analyzed Under The
Rule Of Reason
Antitrust law treats naked agreements among competitors that
fix prices or allocate markets as per se illegal.
Where
competitors economically integrate in a joint venture, however,
such agreements, if reasonably necessary to accomplish the
procompetitive benefits of the integration, are analyzed under
the rule of reason.35
In accord with general antitrust
principles, physician network joint ventures will be analyzed
under the rule of reason, and will not be viewed as per se
illegal, if the physicians’ integration through the network is
likely to produce significant efficiencies that benefit
consumers, and any price agreements (or other agreements that
35
In a network limited to providers who are not actual or
potential competitors, the providers generally can agree on the
prices to be charged for their services without the kinds of
economic integration discussed below.
71
would otherwise be per se illegal) by the network physicians are
reasonably necessary to realize those efficiencies.36
Where the participants in a physician network joint venture
have agreed to share substantial financial risk as defined in
Section A.4. of this policy statement, their risk-sharing
arrangement generally establishes both an overall efficiency goal
for the venture and the incentives for the physicians to meet
that goal.
The setting of price is integral to the venture’s use
of such an arrangement and therefore warrants evaluation under
the rule of reason.
Physician network joint ventures that do not involve the
sharing of substantial financial risk may also involve sufficient
integration to demonstrate that the venture is likely to produce
significant efficiencies.
Such integration can be evidenced by
the network implementing an active and ongoing program to
evaluate and modify practice patterns by the network’s physician
participants and create a high degree of interdependence and
36
In some cases, the combination of the competing
physicians in the network may enable them to offer what could be
considered to be a new product producing substantial
efficiencies, and therefore the venture will be analyzed under
the rule of reason. See Broadcast Music, Inc. v. Columbia
Broadcasting System, Inc., 441 U.S. 1, 21-22 (1979) (competitors'
integration and creation of a blanket license for use of
copyrighted compositions results in efficiencies so great as to
make the blanket license a "different product" from the mere
combination of individual competitors and, therefore, joint
pricing of the blanket license is subject to rule of reason
analysis, rather than the per se rule against price fixing). The
Agencies’ analysis will focus on the efficiencies likely to be
produced by the venture, and the relationship of any price
agreements to the achievement of those efficiencies, rather than
on whether the venture creates a product that can be labeled
“new” or “different.”
72
cooperation among the physicians to control costs and ensure
quality.
This program may include: (1) establishing mechanisms
to monitor and control utilization of health care services that
are designed to control costs and assure quality of care; (2)
selectively choosing network physicians who are likely to further
these efficiency objectives; and (3) the significant investment
of capital, both monetary and human, in the necessary
infrastructure and capability to realize the claimed
efficiencies.
The foregoing are not, however, the only types of
arrangements that can evidence sufficient integration to warrant
rule of reason analysis, and the Agencies will consider other
arrangements that also may evidence such integration.
However,
in all cases, the Agencies’ analysis will focus on substance,
rather than form, in assessing a network’s likelihood of
producing significant efficiencies.
To the extent that
agreements on prices to be charged for the integrated provision
of services are reasonably necessary to the venture’s achievement
of efficiencies, they will be evaluated under the rule of reason.
In contrast to integrated physician network joint ventures,
such as these discussed above, there have been arrangements among
physicians that have taken the form of networks, but which in
purpose or effect were little more than efforts by their
participants to prevent or impede competitive forces from
operating in the market.
These arrangements are not likely to
produce significant procompetitive efficiencies.
73
Such
arrangements have been, and will continue to be, treated as
unlawful conspiracies or cartels, whose price agreements are
per se illegal.
Determining that an arrangement is merely a vehicle to fix
prices or engage in naked anticompetitive conduct is a factual
inquiry that must be done on a case-by-case basis to determine
the arrangement's true nature and likely competitive effects.
However, a variety of factors may tend to corroborate a network's
anticompetitive nature, including:
statements evidencing
anticompetitive purpose; a recent history of anticompetitive
behavior or collusion in the market, including efforts to
obstruct or undermine the development of managed care; obvious
anticompetitive structure of the network (e.g., a network
comprising a very high percentage of local area physicians, whose
participation in the network is exclusive, without any plausible
business or efficiency justification); the absence of any
mechanisms with the potential for generating significant
efficiencies or otherwise increasing competition through the
network; the presence of anticompetitive collateral agreements;
and the absence of mechanisms to prevent the network’s operation
from having anticompetitive spillover effects outside the
network.
2.
Applying The Rule Of Reason
A rule of reason analysis determines whether the formation
and operation of the joint venture may have a substantial
anticompetitive effect and, if so, whether that potential effect
74
is outweighed by any procompetitive efficiencies resulting from
the joint venture.
The rule of reason analysis takes into
account characteristics of the particular physician network joint
venture, and the competitive environment in which it operates,
that bear on the venture's likely effect on competition.
A determination about the lawfulness of a network’s activity
under the rule of reason sometimes can be reached without an
extensive inquiry under each step of the analysis.
For example,
a physician network joint venture that involves substantial
clinical integration may include a relatively small percentage of
the physicians in the relevant markets on a non-exclusive basis.
In that case, the Agencies may be able to conclude expeditiously
that the network is unlikely to be anticompetitive, based on the
competitive environment in which it operates.
In assessing the
competitive environment, the Agencies would consider such market
factors as the number, types, and size of managed care plans
operating in the area, the extent of physician participation in
those plans, and the economic importance of the managed care
plans to area physicians.
See infra Example 1.
Alternatively,
for example, if a restraint that facially appears to be of a kind
that would always or almost always tend to reduce output or
increase prices, but has not been considered per se unlawful, is
not reasonably necessary to the creation of efficiencies, the
75
Agencies will likely challenge the restraint without an elaborate
analysis of market definition and market power.37
The steps ordinarily involved in a rule of reason analysis of
physician network joint ventures are set forth below.
Step one: Define the relevant market.
The Agencies evaluate
the competitive effects of a physician network joint venture in
each relevant market in which it operates or has substantial
impact.
In defining the relevant product and geographic markets,
the Agencies look to what substitutes, as a practical matter, are
reasonably available to consumers for the services in question.38
The Agencies will first identify the relevant services that the
physician network joint venture provides.
Although all services
provided by each physician specialty might be a separate relevant
service market, there may be instances in which significant
overlap of services provided by different physician specialties,
or in some circumstances, certain nonphysician health care
providers, justifies including services from more than one
physician specialty or category of providers in the same market.
For each relevant service market, the relevant geographic market
will include all physicians (or other providers) who are good
substitutes for the physician participants in the joint venture.
37
See FTC v. Indiana Federation of Dentists, 476 U.S. 447,
459-60 (1986).
38
A more extensive discussion of how the Agencies define
relevant markets is contained in the Agencies' 1992 Horizontal
Merger Guidelines.
76
Step two: Evaluate the competitive effects of the physician
joint venture.
The Agencies examine the structure and activities
of the physician network joint venture and the nature of
competition in the relevant market to determine whether the
formation or operation of the venture is likely to have an
anticompetitive effect.
Two key areas of competitive concern are
whether a physician network joint venture could raise the prices
for physician services charged to health plans above competitive
levels, or could prevent or impede the formation or operation of
other networks or plans.
In assessing whether a particular network arrangement could
raise prices or exclude competition, the Agencies will examine
whether the network physicians collectively have the ability and
incentive to engage in such conduct.
The Agencies will consider
not only the proportion of the physicians in any relevant market
who are in the network, but also the incentives faced by
physicians in the network, and whether different groups of
physicians in a network may have significantly different
incentives that would reduce the likelihood of anticompetitive
conduct.
The Department of Justice has entered into final
judgments that permit a network to include a relatively large
proportion of physicians in a relevant market where the
percentage of physicians with an ownership interest in the
network is strictly limited, and the network subcontracts with
additional physicians under terms that create a sufficient
divergence of economic interest between the subcontracting
77
physicians and the owner physicians so that the owner physicians
have an incentive to control the costs to the network of the
subcontracting physicians.39
Evaluating the incentives faced by
network physicians requires an examination of the facts and
circumstances of each particular case.
The Agencies will assess
whether different groups of physicians in the network actually
have significantly divergent incentives that would override any
shared interest, such as the incentive to profit from higher fees
for their medical services.
The Agencies will also consider
whether the behavior of network physicians or other market
evidence indicates that the differing incentives among groups of
physicians will not prevent anticompetitive conduct.
If, in the relevant market, there are many other networks or
many physicians who would be available to form competing networks
or to contract directly with health plans, it is unlikely that
the joint venture would raise significant competitive concerns.
The Agencies will analyze the availability of suitable physicians
to form competing networks, including the exclusive or
non-exclusive nature of the physician network joint venture.
The Agencies recognize that the competitive impact of
exclusive arrangements or other limitations on the ability of a
network’s physician participants to contract outside the network
39
See, e.g., Competitive Impact Statements in United States
v. Health Choice of Northwest Missouri, Inc., Case No. 95-6171CV-SJ-6 (W.D. Mo.; filed Sept. 13, 1995), 60 Fed. Reg. 51808,
51815 (Oct. 3, 1995); United States and State of Connecticut v.
HealthCare Partners, Inc., Case No. 395-CV-01946-RNC (D. Conn.;
filed Sept. 13, 1995), 60 Fed. Reg. 52018, 52020 (Oct. 4, 1995).
78
can vary greatly.
For example, in some circumstances exclusivity
may help a network serve its subscribers and increase its
physician participants' incentives to further the interests of
the network.
In other situations, however, the anticompetitive
risks posed by such exclusivity may outweigh its procompetitive
benefits.
Accordingly, the Agencies will evaluate the actual or
likely effects of particular limitations on contracting in the
market situation in which they occur.
An additional area of possible anticompetitive concern
involves the risk of "spillover" effects from the venture.
For
example, a joint venture may involve the exchange of
competitively sensitive information among competing physicians
and thereby become a vehicle for the network's physician
participants to coordinate their activities outside the venture.
Ventures that are structured to reduce the likelihood of such
spillover are less likely to result in anticompetitive effects.
For example, a network that uses an outside agent to collect and
analyze fee data from physicians for use in developing the
network's fee schedule, and avoids the sharing of such sensitive
information among the network's physician participants, may
reduce concerns that the information could be used by the
network's physician participants to set prices for services they
provide outside the network.
79
Step three:
efficiencies.40
Evaluate the impact of procompetitive
This step requires an examination of the joint
venture's likely procompetitive efficiencies, and the balancing
of these efficiencies against any likely anticompetitive effects.
The greater the venture's likely anticompetitive effects, the
greater must be the venture's likely efficiencies.
In assessing
efficiency claims, the Agencies focus on net efficiencies that
will be derived from the operation of the network and that result
in lower prices or higher quality to consumers.
The Agencies
will not accept claims of efficiencies if the parties reasonably
can achieve equivalent or comparable savings through
significantly less anticompetitive means.
In making this
assessment, however, the Agencies will not search for a
theoretically least restrictive alternative that is not practical
given business realities.
Experience indicates that, in general, more significant
efficiencies are likely to result from a physician network joint
venture's substantial financial risk sharing or substantial
clinical integration.
However, the Agencies will consider a
broad range of possible cost savings, including improved cost
controls, case management and quality assurance, economies of
scale, and reduced administrative or transaction costs.
40
If steps one and two reveal no competitive concerns with
the physician network joint venture, step three is unnecessary,
and the analysis continues with step four, below.
80
In assessing the likelihood that efficiencies will be
realized, the Agencies recognize that competition is one of the
strongest motivations for firms to lower prices, reduce costs,
and provide higher quality.
Thus, the greater the competition
facing the network, the more likely it is that the network will
actually realize potential efficiencies that would benefit
consumers.
Step four: Evaluation of collateral agreements.
This step
examines whether the physician network joint venture includes
collateral agreements or conditions that unreasonably restrict
competition and are unlikely to contribute significantly to the
legitimate purposes of the physician network joint venture.
The
Agencies will examine whether the collateral agreements are
reasonably necessary to achieve the efficiencies sought by the
joint venture.
For example, if the physician participants in a
physician network joint venture agree on the prices they will
charge patients who are not covered by the health plans with
which their network contracts, such an agreement plainly is not
reasonably necessary to the success of the joint venture and is
an antitrust violation.41
Similarly, attempts by a physician
network joint venture to exclude competitors or classes of
competitors of the network’s physician participants from the
market could have anticompetitive effects, without advancing any
41
This analysis of collateral agreements also applies to
physician network joint ventures that fall within the safety
zones.
81
legitimate, procompetitive goal of the network.
This could
happen, for example, if the network facilitated agreements among
the physicians to refuse to deal with such competitors outside
the network, or to pressure other market participants to refuse
to deal with such competitors or deny them necessary access to
key facilities.
C.
Examples Of Physician Network Joint Ventures
The following are examples of how the Agencies would apply
the principles set forth in this statement to specific physician
network joint ventures.
The first three are new examples:
1) a
network involving substantial clinical integration, that is
unlikely to raise significant competitive concerns under the rule
of reason;
2) a network involving both substantial financial
risk-sharing and non-risk-sharing arrangements, which would be
analyzed under the rule of reason; and 3) a network involving
neither substantial financial risk-sharing nor substantial
clinical integration, and whose price agreements likely would be
challenged as per se unlawful.
The last four examples involve
networks that operate in a variety of market settings and with
different levels of physician participants; three are networks
that involve substantial financial risk-sharing and one is a
network in which the physician participants do not jointly agree
on, or negotiate, price.
82
1.
Physician Network Joint Venture Involving Clinical
Integration
Charlestown is a relatively isolated, medium-sized city.
For
the purposes of this example, the services provided by primary
care physicians and those provided by the different physician
specialties each constitute a relevant product market; and the
relevant geographic market for each of them is Charlestown.
Several HMOs and other significant managed care plans operate
in Charlestown.
A substantial proportion of insured individuals
are enrolled in these plans, and enrollment in managed care is
expected to increase.
Many physicians in each of the specialties
participate in more than one of these plans.
There is no
significant overlap among the participants on the physician
panels of many of these plans.
A group of Charlestown physicians establishes an IPA to
assume greater responsibility for managing the cost and quality
of care rendered to Charlestown residents who are members of
health plans.
They hope to reduce costs while maintaining or
improving the quality of care, and thus to attract more managed
care patients to their practices.
The IPA will implement systems to establish goals relating to
quality and appropriate utilization of services by IPA
participants, regularly evaluate both individual participants’
and the network’s aggregate performance with respect to those
goals, and modify individual participants’ actual practices,
where necessary, based on those evaluations.
The IPA will engage
in case management, preauthorization of some services, and
83
concurrent and retrospective review of inpatient stays.
In
addition, the IPA is developing practice standards and protocols
to govern treatment and utilization of services, and it will
actively review the care rendered by each doctor in light of
these standards and protocols.
There is a significant investment of capital to purchase the
information systems necessary to gather aggregate and individual
data on the cost, quantity, and nature of services provided or
ordered by the IPA physicians; to measure performance of the
group and the individual doctors against cost and quality
benchmarks; and to monitor patient satisfaction.
The IPA will
provide payers with detailed reports on the cost and quantity of
services provided, and on the network’s success in meeting its
goals.
The IPA will hire a medical director and a support staff to
perform the above functions and to coordinate patient care in
specific cases.
The doctors also have invested appreciable time
in developing the practice standards and protocols, and will
continue actively to monitor care provided through the IPA.
Network participants who fail to adhere to the network’s
standards and protocols will be subject to remedial action,
including the possibility of expulsion from the network.
The IPA physicians will be paid by health plans on a fee-forservice basis; the physicians will not share substantial
financial risk for the cost of services rendered to covered
individuals through the network.
84
The IPA will retain an agent to
develop a fee schedule, negotiate fees, and contract with payers
on behalf of the venture.
Information about what participating
doctors charge non-network patients will not be disseminated to
participants in the IPA, and the doctors will not agree on the
prices they will charge patients not covered by IPA contracts.
The IPA is built around three geographically dispersed
primary care group practices that together account for 25 percent
of the primary care doctors in Charlestown.
A number of
specialists to whom the primary care doctors most often refer
their patients also are invited to participate in the IPA.
These
specialists are selected based on their established referral
relationships with the primary care doctors, the quality of care
provided by the doctors, their willingness to cooperate with the
goals of the IPA, and the need to provide convenient referral
services to patients of the primary care doctors.
Specialist
services that are needed less frequently will be provided by
doctors who are not IPA participants.
Participating specialists
constitute from 20 to 35 percent of the specialists in each
relevant market, depending on the specialty.
participation in the IPA is non-exclusive.
Physician
Many IPA participants
already do and are expected to continue to participate in other
managed care plans and earn substantial income from those plans.
Competitive Analysis
Although the IPA does not fall within the antitrust safety
zone because the physicians do not share substantial financial
risk, the Agencies would analyze the IPA under the rule of reason
85
because it offers the potential for creating significant
efficiencies and the price agreement is reasonably necessary to
realize those efficiencies.
Prior to contracting on behalf of
competing doctors, the IPA will develop and invest in mechanisms
to provide cost-effective quality care, including standards and
protocols to govern treatment and utilization of services,
information systems to measure and monitor individual physician
and aggregate network performance, and procedures to modify
physician behavior and assure adherence to network standards and
protocols.
The network is structured to achieve its efficiencies
through a high degree of interdependence and cooperation among
its physician participants.
The price agreement, under these
circumstances, is subordinate to and reasonably necessary to
achieve these objectives.42
Furthermore, the Agencies would not challenge under the rule
of reason the doctors’ agreement to establish and operate the
IPA.
In conducting the rule of reason analysis, the Agencies
would evaluate the likely competitive effects of the venture in
each relevant market.
In this case, the IPA does not appear
likely to limit competition in any relevant market either by
hampering the ability of health plans to contract individually
42
Although the physicians in this example have not directly
agreed with one another on the prices to be charged for services
rendered through the network, the venture’s use of an agent,
subject to its control, to establish fees and to negotiate and
execute contracts on behalf of the venture amounts to a price
agreement among competitors. However, the use of such an agent
should reduce the risk of the network’s activities having
anticompetitive spillover effects on competition among the
physicians for non-network patients.
86
with area physicians or with other physician network joint
ventures, or by enabling the physicians to raise prices above
competitive levels.
The IPA does not appear to be overinclusive:
many primary care physicians and specialists are available to
other plans, and the doctors in the IPA have been selected to
achieve the network’s procompetitive potential.
Many IPA
participants also participate in other managed care plans and are
expected to continue to do so in the future.
Moreover, several
significant managed care plans are not dependent on the IPA
participants to offer their products to consumers.
Finally, the
venture is structured so that physician participants do not share
competitively sensitive information, thus reducing the likelihood
of anticompetitive spillover effects outside the network where
the physicians still compete, and the venture avoids any
anticompetitive collateral agreements.
Since the venture is not likely to be anticompetitive, there
is no need for further detailed evaluation of the venture’s
potential for generating procompetitive efficiencies.
For these
reasons, the Agencies would not challenge the joint venture.
However, they would reexamine this conclusion and do a more
complete analysis of the procompetitive efficiencies if evidence
of actual anticompetitive effects were to develop.
87
2.
Physician Network Joint Venture Involving Risk-Sharing
And Non-Risk-Sharing Contracts
An IPA has capitation contracts with three insurer-developed
HMOs.
Under its contracts with the HMOs, the IPA receives a set
fee per member per month for all covered services required by
enrollees in a particular health plan.
Physician participants in
the IPA are paid on a fee-for-service basis, pursuant to a fee
schedule developed by the IPA.
on a non-exclusive basis.
Physicians participate in the IPA
Many of the IPA’s physicians
participate in managed care plans outside the IPA, and earn
substantial income from those plans.
The IPA uses a variety of mechanisms to assure appropriate
use of services under its capitation contracts so that it can
provide contract services within its capitation budgets.
In part
because the IPA has managed the provision of care effectively,
enrollment in the HMOs has grown to the point where HMO patients
are a significant share of the IPA doctors’ patients.
The three insurers that offer the HMOs also offer PPO options
in response to the request of employers who want to give their
employees greater choice of plans.
Although the capitation
contracts are a substantial majority of the IPA’s business, it
also contracts with the insurers to provide services to the PPO
programs on a fee-for-service basis.
The physicians are paid
according to the same fee schedule used to pay them under the
IPA’s capitated contracts.
The IPA uses the same panel of
providers and the same utilization management mechanisms that are
involved in the HMO contracts.
The IPA has tracked utilization
88
for HMO and PPO patients, which shows similar utilization
patterns for both types of patients.
Competitive Analysis
Because the IPA negotiates and enters into both capitated and
fee-for-service contracts on behalf on its physicians, the
venture is not within a safety zone.
However, the IPA’s HMO
contracts are analyzed under the rule of reason because they
involve substantial financial risk-sharing.
The PPO contracts
also are analyzed under the rule of reason because there are
significant efficiencies from the capitated arrangements that
carry over to the fee-for-service business.
The IPA’s procedures
for managing the provision of care under its capitation contracts
and its related fee schedules produce significant efficiencies;
and since those same procedures and fees are used for the PPO
contracts and result in similar utilization patterns, they will
likely result in significant efficiencies for the PPO
arrangements as well.
3.
Physician Network That Is Per Se Unlawful
A group of physicians in Clarksville forms an IPA to contract
with managed care plans.
There is some limited managed care
presence in the area, and new plans have announced their interest
in entering.
The physicians agree that the only way they can
effectively combat the power of the plans and protect themselves
from low fees and intrusive utilization review is to organize and
89
negotiate with the plans collectively through the IPA, rather
than individually.
Membership in the IPA is open to any licensed physician in
Clarksville.
Members contribute $2,000 each to fund the legal
fees associated with incorporating the IPA and its operating
expenses, including the salary of an executive director who will
negotiate contracts on behalf of the IPA.
only into fee-for-service contracts.
The IPA will enter
The doctors will not share
substantial financial risk under the contracts.
The Contracting
Committee, in consultation with the executive director, develops
a fee schedule.
The IPA establishes a Quality Assurance and Utilization
Review Committee.
Upon recommendation of this committee, the
members vote to have the IPA adopt two basic utilization review
parameters: strict limits on documentation to be provided by
physicians to the payers, and arbitration of disputes regarding
plan utilization review decisions by a committee of the local
medical society.
The IPA refuses to contract with plans that do
not accept these utilization review parameters.
The IPA claims
to have its own utilization review/quality assurance programs in
development, but has taken very few steps to create such a
program.
It decides to rely instead on the hospital’s
established peer review mechanisms.
Although there is no formal exclusivity agreement, IPA
physicians who are approached by managed care plans seeking
contracts refer the plans to the IPA.
90
Except for some contracts
predating the formation of the IPA, the physicians do not
contract individually with managed care plans on terms other than
those set by the IPA.
Competitive Analysis
This IPA is merely a vehicle for collective decisions by its
physicians on price and other significant terms of dealing.
The
physicians’ purpose in forming the IPA is to increase their
bargaining power with payers.
The IPA makes no effort to
selectively choose physicians who are likely to further the
network’s achievement of efficiencies, and the IPA involves no
significant integration, financial or otherwise.
IPA physicians’
participation in the hospital’s general peer review procedures
does not evidence integration by those physicians that is likely
to result in significant efficiencies in the provision of
services through the IPA.
The IPA does not manage the provision
of care or offer any substantial potential for significant
procompetitive efficiencies.
The physicians are merely
collectively agreeing on prices they will receive for services
rendered under IPA contracts and not to accept certain aspects of
utilization review that they do not like.
The physicians’ contribution of capital to form the IPA does
not make it a legitimate joint venture.
In some circumstances,
capital contributions by an IPA’s participants can indicate that
the participants have made a significant commitment to the
creation of an efficiency-producing competitive entity in the
91
market.43
Capital contributions, however, can also be used to
fund a cartel.
The key inquiry is whether the contributed
capital is being used to further the network’s capability to
achieve substantial efficiencies.
In this case, the funds are
being used primarily to support the joint negotiation, and not to
achieve substantial procompetitive efficiencies.
Thus, the
physicians’ agreement to bargain through the joint venture will
be treated as per se illegal price fixing.
4.
Exclusive Physician Network Joint Venture With
Financial Risk-Sharing And Comprising More
Than Twenty Percent Of Physicians With Active
Admitting Privileges At A Hospital
County Seat is a relatively isolated, medium-sized community
of about 350,000 residents.
The closest town is 50 miles away.
County Seat has five general acute care hospitals that offer a
mix of basic primary, secondary, and tertiary care services.
Five hundred physicians have medical practices based in
County Seat, and all maintain active admitting privileges at one
or more of County Seat's hospitals.
No physician from outside
County Seat has any type of admitting privileges at a County Seat
hospital.
The physicians represent 10 different specialties and
are distributed evenly among the specialties, with 50 doctors
practicing each specialty.
43
See supra Example 1.
92
One hundred physicians (also distributed evenly among
specialties) maintain active admitting privileges at County Seat
Medical Center.
County Seat's other 400 physicians maintain
active admitting privileges at other County Seat hospitals.
Half of County Seat Medical Center's 100 active admitting
physicians propose to form an IPA to market their services to
purchasers of health care services.
evenly among the specialties.
The physicians are divided
Under the proposed arrangement,
the physicians in the network joint venture would agree to
meaningful cost containment and quality goals, including
utilization review, quality assurance, and other measures
designed to reduce the provision of unnecessary care to the
plan's subscribers, and a substantial amount (in this example
20 percent) of the compensation due to the network's physician
participants would be withheld and distributed only if these
measures are successfully met.
venture would be exclusive:
This physician network joint
Its physician participants would not
be free to contract individually with health plans or to join
other physician joint ventures.
A number of health plans that contract selectively with
hospitals and physicians already operate in County Seat.
These
plans and local employers agree that other County Seat
physicians, and the hospitals to which they admit, are good
substitutes for the active admitting physicians and the inpatient
services provided at County Seat Medical Center.
Physicians with
medical practices based outside County Seat, however, are not
93
good substitutes for area physicians, because such physicians
would find it inconvenient to practice at County Seat hospitals
due to the distance between their practice locations and County
Seat.
Competitive Analysis
A key issue is whether a physician network joint venture,
such as this IPA, comprising 50 percent of the physicians in each
specialty with active privileges at one of five comparable
hospitals in County Seat would fall within the antitrust safety
zone.
The physicians within the joint venture represent less
than 20 percent of all the physicians in each specialty in County
Seat.
County Seat is the relevant geographic market for purposes of
analyzing the competitive effects of this proposed physician
joint venture.
Within each specialty, physicians with admitting
privileges at area hospitals are good substitutes for one
another.
However, physicians with practices based elsewhere are
not considered good substitutes.
For purposes of analyzing the effects of the venture, all of
the physicians in County Seat should be considered market
participants.
Purchasers of health care services consider all
physicians within each specialty, and the hospitals at which they
have admitting privileges, to be relatively interchangeable.
Thus, in this example, any attempt by the joint venture's
physician participants collectively to increase the price of
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physician services above competitive levels would likely lead
third-party purchasers to recruit non-network physicians at
County Seat Medical Center or other area hospitals.
Because physician network joint venture participants
constitute less than 20 percent of each group of specialists in
County Seat and agree to share substantial financial risk, this
proposed joint venture would fall within the antitrust safety
zone.
5.
Physician Network Joint Venture With Financial
Risk-Sharing And A Large Percentage Of
Physicians In A Relatively Small Community
Smalltown has a population of 25,000, a single hospital, and
50 physicians, most of whom are family practitioners.
All of the
physicians practice exclusively in Smalltown and have active
admitting privileges at the Smalltown hospital.
The closest
urban area, Big City, is located some 35 miles away and has a
population of 500,000.
A little more than half of Smalltown's
working adults commute to work in Big City.
Some of the health
plans used by employers in Big City are interested in extending
their network of providers to Smalltown to provide coverage for
subscribers who live in Smalltown, but commute to work in Big
City (coverage is to include the families of commuting
subscribers).
However, the number of commuting Smalltown
subscribers is a small fraction of the Big City employers' total
workforce.
Responding to these employers' needs, a few health plans have
asked physicians in Smalltown to organize a non-exclusive IPA
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large enough to provide a reasonable choice to subscribers who
reside in Smalltown, but commute to work in Big City.
Because of
the relatively small number of potential enrollees in Smalltown,
the plans prefer to contract with such a physician network joint
venture, rather than engage in what may prove to be a
time-consuming series of negotiations with individual Smalltown
physicians to establish a panel of physician providers there.
A number of Smalltown physicians have agreed to form a
physician network joint venture.
The joint venture will contract
with health plans to provide physician services to subscribers of
the plans in exchange for a monthly capitation fee paid for each
of the plans' subscribers.
The physicians forming this joint
venture would constitute about half of the total number of
physicians in Smalltown.
They would represent about 35 percent
of the town's family practitioners, but higher percentages of the
town's general surgeons (50 percent), pediatricians (50 percent),
and obstetricians (67 percent).
The health plans that serve Big
City employers say that the IPA must have a large percentage of
Smalltown physicians to provide adequate coverage for employees
and their families in Smalltown and in a few scattered rural
communities in the immediate area and to allow the doctors to
provide coverage for each other.
In this example, other health plans already have entered
Smalltown, and contracted with individual physicians.
They have
made substantial inroads with Smalltown employers, signing up a
large number of enrollees.
None of these plans has had any
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difficulty contracting with individual physicians, including many
who would participate in the proposed joint venture.
Finally, the evidence indicates that Smalltown is the
relevant geographic market for all physician services.
Physicians in Big City are not good substitutes for a significant
number of Smalltown residents.
Competitive Analysis
This proposed physician network joint venture would not fall
within the antitrust safety zone because it would comprise over
30 percent of the physicians in a number of relevant specialties
in the geographic market.
However, the Agencies would not
challenge the joint venture because a rule of reason analysis
indicates that its formation would not likely hamper the ability
of health plans to contract individually with area physicians or
with other physician network joint ventures, or enable the
physicians to raise prices above competitive levels.
In
addition, the joint venture’s agreement to accept capitated fees
creates incentives for its physicians to achieve cost savings.
That health plans have requested formation of this venture
also is significant, for it suggests that the joint venture would
offer additional efficiencies.
In this instance, it appears to
be a low-cost method for plans to enter an area without investing
in costly negotiations to identify and contract with individual
physicians.
Moreover, in small markets such as Smalltown, it may be
necessary for purchasers of health care services to contract with
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a relatively large number of physicians to provide adequate
coverage and choice for enrollees.
For instance, if there were
only three obstetricians in Smalltown, it would not be possible
for a physician network joint venture offering obstetrical
services to have less than 33 percent of the obstetricians in the
relevant area.
Furthermore, it may be impractical to have less
than 67 percent in the plan, because two obstetricians may be
needed in the venture to provide coverage for each other.
Although the joint venture has a relatively large percentage
of some specialties, it appears unlikely to present competitive
concerns under the rule of reason because of three factors:
(1) the demonstrated ability of health plans to contract with
physicians individually; (2) the possibility that other physician
network joint ventures could be formed; and (3) the potential
benefits from the coverage to be provided by this physician
network joint venture.
Therefore, the Agencies would not
challenge the joint venture.
6.
Physician Network Joint Venture With Financial Risk
Sharing And A Large Percentage Of Physicians In A Small,
Rural County
Rural County has a population of 15,000, a small primary care
hospital, and ten physicians, including seven general and family
practitioners, an obstetrician, a pediatrician, and a general
surgeon.
All of the physicians are solo practitioners.
The
nearest urban area is about 60 miles away in Big City, which has
a population of 300,000, and three major hospitals to which
patients from Rural County are referred or transferred for higher
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levels of hospital care.
However, Big City is too far away for
most residents of Rural County routinely to use its physicians
for services available in Rural County.
Insurance Company, which operates throughout the state, is
attempting to offer managed care programs in all areas of the
state, and has asked the local physicians in Rural County to form
an IPA to provide services under the program to covered persons
living in the County.
No other managed care plan has attempted
to enter the County previously.
Initially, two of the general practitioners and two of the
specialists express interest in forming a network, but Insurance
Company says that it intends to market its plan to the larger
local employers, who need broader geographic and specialty
coverage for their employees.
Consequently, Insurance Company
needs more of the local general practitioners and the one
remaining specialist in the IPA to provide adequate geographic,
specialty, and backup coverage to subscribers in Rural County.
Eventually, four of the seven general practitioners and the one
remaining specialist join the IPA and agree to provide services
to Insurance Company's subscribers, under contracts providing for
capitation.
While the physicians' participation in the IPA is
structured to be non-exclusive, no other managed care plan has
yet entered the local market or approached any of the physicians
about joining a different provider panel.
In discussing the
formation of the IPA with Insurance Company, a number of the
physicians have made clear their intention to continue to
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practice outside the IPA and have indicated they would be
interested in contracting individually with other managed care
plans when those plans expand into Rural County.
Competitive Analysis
This proposed physician network joint venture would not fall
within the antitrust safety zone because it would comprise over
30 percent of the general practitioners in the geographic market.
Under the circumstances, a rule of reason analysis indicates that
the Agencies would not challenge the formation of the joint
venture, for the reasons discussed below.
For purposes of this analysis, Rural County is considered the
relevant geographic market.
Generally, the Agencies will closely
examine joint ventures that comprise a large percentage of
physicians in the relevant market.
However, in this case, the
establishment of the IPA and its inclusion of more than half of
the general practitioners and all of the specialists in the
network is the result of the payer's expressed need to have more
of the local physicians in its network to sell its product in the
market.
Thus, the level of physician participation in the
network does not appear to be overinclusive, but rather appears
to be the minimum necessary to meet the employers' needs.
Although the IPA has more than half of the general
practitioners and all of the specialists in it, under the
particular circumstances this does not, by itself, raise
sufficient concerns of possible foreclosure of entry by other
managed care plans, or of the collective ability to raise prices
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above competitive levels, to warrant antitrust challenge to the
joint venture by the Agencies.
Because it is the first such
joint venture in the county, there is no way absolutely to verify
at the outset that the joint venture in fact will be nonexclusive.
However, the physicians' participation in the IPA is
formally non-exclusive, and they have expressed a willingness to
consider joining other managed care programs if they begin
operating in the area.
Moreover, the three general practitioners
who are not members of the IPA are available to contract with
other managed care plans.
The IPA also was established with
participation by the local area physicians at the request of
Insurance Company, indicating that this structure was not
undertaken as a means for the physicians to increase prices or
prevent entry of managed care plans.
Finally, the joint venture can benefit consumers in Rural
County through the creation of efficiencies.
The physicians have
jointly put themselves at financial risk to control the use and
cost of health care services through capitation.
To make the
capitation arrangement financially viable, the physicians will
have to control the use and cost of health care services they
provide under Insurance Company's program.
Through the
physicians' network joint venture, Rural County residents will be
offered a beneficial product, while competition among the
physicians outside the network will continue.
Given these facts, the Agencies would not challenge the joint
venture.
If, however, it later became apparent that the
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physicians' participation in the joint venture in fact was
exclusive, and consequently other managed care plans that wanted
to enter the market and contract with some or all of the
physicians at competitive terms were unable to do so, the
Agencies would re-examine the joint venture's legality.
The
joint venture also would raise antitrust concerns if it appeared
that participation by most of the local physicians in the joint
venture resulted in anticompetitive effects in markets outside
the joint venture, such as uniformity of fees charged by the
physicians in their solo medical practices.
7.
Physician Network Joint Venture With No Price
Agreement And Involving All Of The Physicians
In A Small, Rural County
Rural County has a population of 10,000, a small primary care
hospital, and six physicians, consisting of a group practice of
three family practitioners, a general practitioner, an
obstetrician, and a general surgeon.
The nearest urban area is
about 75 miles away in Big City, which has a population of
200,000, and two major hospitals to which patients from Rural
County are referred or transferred for higher levels of hospital
care.
Big City is too far away, however, for most residents of
Rural County to use for services available in Rural County.
HealthCare, a managed care plan headquartered in another
state, is thinking of marketing a plan to the larger employers in
Rural County.
However, it finds that the cost of contracting
individually with providers, administering the system, and
overseeing the quality of care in Rural County is too high on a
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per capita basis to allow it to convince employers to switch from
indemnity plans to its plan.
HealthCare believes its plan would
be more successful if it offered higher quality and better access
to care by opening a clinic in the northern part of the county
where no physicians currently practice.
All of the local physicians approach HealthCare about
contracting with their recently-formed, non-exclusive, IPA.
The
physicians are willing to agree through their IPA to provide
services at the new clinic that HealthCare will establish in the
northern part of the county and to implement the utilization
review procedures that HealthCare has adopted in other parts of
the state.
HealthCare wants to negotiate with the new IPA.
It believes
that the local physicians collectively can operate the new clinic
more efficiently than it can from its distant headquarters, but
HealthCare also believes that collectively negotiating with all
of the physicians will result in it having to pay higher fees or
capitation rates.
Thus, it encourages the IPA to appoint an
agent to negotiate the non-fee related aspects of the contracts
and to facilitate fee negotiations with the group practice and
the individual doctors.
The group practice and the individual
physicians each will sign and negotiate their own individual
contracts regarding fees and will unilaterally determine whether
to contract with HealthCare, but will agree through the IPA to
provide physician, administrative, and utilization review
services.
The agent will facilitate these individual fee
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negotiations by discussing separately and confidentially with
each physician the physician's fee demands and presenting the
information to HealthCare.
No fee information will be shared
among the physicians.
Competitive Analysis
For purposes of this analysis, Rural County is considered the
relevant geographic market.
Generally, the Agencies are
concerned with joint ventures that comprise all or a large
percentage of the physicians in the relevant market.
In this
case, however, the joint venture appears on balance to be
procompetitive.
The potential for competitive harm from the
venture is not great and is outweighed by the efficiencies likely
to be generated by the arrangement.
The physicians are not jointly negotiating fees or engaging
in other activities that would be viewed as per se antitrust
violations.
Therefore, the IPA would be evaluated under the rule
of reason.
Any possible competitive harm would be balanced
against any likely efficiencies to be realized by the venture to
see whether, on balance, the IPA is anticompetitive or
procompetitive.
Because the IPA is non-exclusive, the potential for
competitive harm from foreclosure of competition is reduced.
Its
physicians are free to contract with other managed care plans or
individually with HealthCare if they desire.
In addition,
potential concerns over anticompetitive pricing are minimized
because physicians will continue to negotiate prices
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individually.
Although the physicians are jointly negotiating
non-price terms of the contract, agreement on these terms appears
to be necessary to the successful operation of the joint venture.
The small risk of anticompetitive harm from this venture is
outweighed by the substantial procompetitive benefits of improved
quality of care and access to physician services that the venture
will engender.
The new clinic in the northern part of the county
will make it easier for residents of that area to receive the
care they need.
Given these facts, the Agencies would not
challenge the joint venture.
***
Physicians who are considering forming physician network
joint ventures and are unsure of the legality of their conduct
under the antitrust laws can take advantage of the Department of
Justice's expedited business review procedure announced on
December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade
Commission's advisory opinion procedure contained at 16 C.F.R.
§§ 1.1-1.4 (1993).
The Agencies will respond to a business
review or advisory opinion request on behalf of physicians who
are considering forming a network joint venture within 90 days
after all necessary information is submitted.
The Department's
December 1, 1992 announcement contains specific guidance about
the information that should be submitted.
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9.
STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE
COMMISSION ENFORCEMENT POLICY ON
MULTIPROVIDER NETWORKS
Introduction
The health care industry is changing rapidly as it looks for
innovative ways to control costs and efficiently provide quality
services.
Health care providers are forming a wide range of new
relationships and af
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