# Statements of Antitrust (1996)

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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 coll

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Aftc%3A6524e6a0c7cfaf30. Public record. Not legal advice.