United States: Managing The Transition To Transformation: Antitrust Considerations When Forming Provider Contracting Networks

Summary

McDermott's Managing the Transition to Transformation series is designed to help health systems and other health care industry leaders address the many challenges presented by the transformation in payment and care delivery models. The goal of this series is to help organizations prepare so that they are not only competitive, but can also thrive under alternative payment models (APMs) and quality-based reimbursement models (QBRs). This article summarizes key antitrust considerations when structuring networks of independent competing providers to participate in value-based payments, and offers practical considerations for network formation.

In Depth

As providers become more accountable for the quality and cost of care, they seek ways to collaborate with each other to achieve their goals. Often, effective management of cost and quality requires coordination among numerous providers. The antitrust laws, however, govern the types of activities that competitors can engage in when collaborating around value-based reimbursement. 

As a general principle, the antitrust laws are designed to promote competition—including competition on price and quality. Therefore, the shifting reimbursement landscape from fee-for-service to value-based payments, to the extent that it fosters competition on price and quality, is harmonious with the antitrust laws. 

This article summarizes key antitrust considerations when structuring networks of independent competing providers to participate in value-based payments, and offers practical considerations for network formation.

Basic Antitrust Prohibition

Absent sufficient integration, independent, competing providers may not agree on the prices they will charge, or the reimbursement amount they will accept, from payors for the health care services they render. This conduct is known as "naked" price-fixing, and it is per se illegal under the antitrust laws. Under the per se standard of illegality, conduct is deemed to be unlawful in all circumstances, irrespective of intent and effect in the actual circumstances. If, however, providers are sufficiently integrated through their participation in a program of clinical integration or substantial financial risk-sharing, then their joint pricing conduct is viewed under the rule of reason, which balances the procompetitive purposes and anticompetitive effects of the integration, and examines whether joint pricing is reasonably necessary to achieve the legitimate purposes of that integration.

Practical Consideration: Are the participants in the collaboration engaging in meaningful, procompetitive activities together?

Independent, Competing Providers

The basic price-fixing prohibition applies to independent, competing providers. Price-fixing is an agreement between two or more entities, and a single entity cannot enter into an agreement with itself. A threshold question, therefore, is whether the participants in the collaboration are competitors within the meaning of the antitrust laws. A hospital and the employed physicians of the hospital entity, for example, should be viewed as a single economic entity that is legally incapable of entering into an unlawful price-fixing agreement with itself. If the network consists of different group practices not under common ownership and control, then the next question is whether that network consists of providers who compete with one another in a relevant product and geographic market.

Practical Consideration: Are the participants all employees or partners of a single group practice, or multiple competing practices?

Price Negotiations

Price-fixing requires an agreement on price or price related terms. If the scope of a collaboration relates solely to government programs where the participants do not negotiate pricing with the government, the participants are not collectively negotiating price so are not entering into a price-fixing agreement (the government has set the price). Similarly, if providers share general best practices with the goal of improving quality, but separately implement those practices and do not coordinate their contracting, pricing or reimbursement, no price-fixing should occur.

Practical Consideration: Are the participants collectively negotiating price or price-related terms?

Substantial Financial Risk-Sharing

If the participants in the contracting venture consist of independent, competing providers, another question is whether a substantial amount of the compensation that is being jointly negotiated is at substantial financial risk. The federal antitrust enforcement agencies (Agencies) define substantial financial risk-sharing as where the network participants share substantial financial risk in providing all the services that are jointly priced through the network. If a network seeks to jointly negotiate only the shared savings and not also the traditional fee-for-service base payment, and all or a substantial amount of the shared savings is at financial risk, then the amount of compensation that is being jointly negotiated should be at financial risk.

The Agencies have provided examples of types of historical risk-sharing arrangements: (1) capitation; (2) percent of premium contracts; (3) utilization-based withhold, penalties and bonus arrangements; and (4) global case rate arrangements. A capitated rate is a fixed, predetermined payment per covered life paid to a network by a health plan for providing services to covered individuals for a specified period, regardless of the amount of services actually provided. Risk-sharing is present only if each physician's income is dependent on the performance of the network as a whole. A percent of premium arrangement is an arrangement where a health plan's payment to a network is linked to the premiums or revenues of the health plan. This type of arrangement is one where the network provides services to a health plan for a predetermined percentage of premium or revenue from the health care plan. 

Networks can also share risk by modifying discounted fee-for-service schedules to provide for utilization-based withholds, penalties or bonuses. These arrangements must create significant financial incentives for the physician participants, as a group, to achieve specified cost-containment goals. For example, these arrangements could involve: (1) withholding from all network participants a substantial amount of the compensation due to them, with distribution of that amount to members based on group performance in meeting the cost-containment goals of the network as a whole; or (2) establishing overall cost or utilization targets for the network as a whole, with the network's members subject to subsequent substantial financial rewards or penalties based on the group's performance in meeting the targets. A discounted fee-for-service arrangement negotiated by a network can create risk-sharing where a substantial amount of the discounted fees are withheld and deposited in a risk pool. 

Global case rate arrangement is where the network agrees to a complex or extended course of treatment that requires the substantial coordination of care by physicians in different specialties for a fixed payment where the costs of that course of treatment for any individual patient can vary greatly due to a variety of factors.

These four examples are illustrative, and not exhaustive. As alternative forms of value-based compensation are developed, networks should consider whether the network participants share substantial financial risk in providing all the services that are jointly priced through the network, and whether all participants in the collaboration share that risk. Where proposed reimbursement differs from these four examples, networks should look to these examples for the scope of integration created through the programs. Providers must be sufficiently integrated through their collaboration to be likely to achieve significant procompetitive efficiencies (e.g., improvements in quality and reductions in unnecessary costs).

Practical Consideration: Is the amount of compensation jointly negotiated by the network at substantial financial risk?

Clinical Integration

The Agencies have also recognized that clinical integration may achieve procompetitive benefits. To be clinically integrated, a network must have an active and ongoing program that evaluates and modifies practice patterns by the network's physician participants and creates a high degree of interdependence and cooperation among the physicians to control costs and ensure quality. The program should include: (1) mechanisms to monitor and control utilization; (2) careful selection of network physicians who are likely to further these efficiency objectives; and (3) the significant investment of capital in the necessary infrastructure and capability to realize the claimed efficiencies. Whether—and to what extent—participants in a program of clinical integration are sufficiently integrated through their participation to justify joint contracting requires a fact-based and detailed analysis of the extent of clinical activities and operations. That said, programs of clinical integration typically involve the investment in significant infrastructure, the electronic exchange of clinical information, adoption of and adherence to clinical practice guidelines, the establishment of goals and benchmarks, monitoring of performance and training and remediation.

Practical Considerations: What are the providers doing together, how and why are those activities meaningful, and how will those activities benefit patients?

Rule of Reason and Ancillarity

If the participants in a managed care contracting network are sufficiently integrated through their participation in a program of clinical integration or substantial financial risk-sharing, then their activities will be judged under the rule of reason, which balances the procompetitive purposes and anticompetitive effects of those activities. Joint price negotiations are permissible under the antitrust laws where the joint price negotiations are reasonably necessary to achieve the legitimate purposes of the joint venture.

Practical Consideration: How do joint price negotiations further the purposes of the collaboration?

Market Power

Networks should determine the percentage of physicians in each relevant market that are combining through the contracting network and assess whether the aggregation may materially reduce payor choice. One question is whether payors must contract through the network in order to contract with a participant, or whether the payor is free to contract independently of the network with a particular provider. Relevant to this analysis is the component of compensation being jointly negotiated.

Practical Consideration: Does the collaboration reduce payor contracting options, either through exclusivity provisions and/or the aggregation of providers?

Spillover Collusion

Finally, any competitive activities in which the participants collectively engage must be reasonably related to the scope of their collaboration. Participants may not enter into unlawful agreements that are outside the scope of their legitimate collaboration.

Practical Consideration: Has the network adopted a compliance plan that sets forth the categories of permissible and impermissible activities given the scope of provider collaboration through the network?

Conclusion

While the types of cost and quality incentives and programs designed to achieve those goals will continue to evolve, the antitrust framework remains intact. That is, independent, competing providers may not jointly negotiate the prices they charge for their health care services unless those joint price negotiations are pursuant to a program of substantial financial risk-sharing or clinical integration. As a greater percentage of reimbursement becomes tied to quality and cost goals, networks should evaluate whether all or a substantial component of the compensation they negotiate on behalf of their participating providers is at financial risk. If so, networks should consider whether their participating providers may be sufficiently integrated through their participation in a program of substantial financial risk-sharing. As a practical matter, payment reform may lead to more networks being evaluated as programs of substantial financial risk- sharing.

Managing the Transition to Transformation: Antitrust Considerations When Forming Provider Contracting Networks

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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