United States: FTC Action Against Physician Cooperative Illustrates Risks of Collective Contracting Activity Among Independent Providers

A recent Federal Trade Commission ("FTC") enforcement action against a physician cooperative in Puerto Rico for organizing a group boycott of a health plan underscores the need for providers to be cognizant of the antitrust laws when engaging in group contracting efforts. The action, which resulted in a proposed consent order, illustrates that agreements among independent providers on the prices they will charge or payors they will deal with are generally per se illegal, though certain exceptions exist for financially or clinically integrated provider joint ventures.

The FTC Action Against OFTACOOP

The FTC charged that OFTACOOP (also known as Cooperativa de Médico Oftalmólogos de Puerto Rico), a Puerto Rico ophthalmologist cooperative with about 100 members, violated section 5 of the FTC Act by orchestrating an agreement among competing ophthalmologists to refuse to deal with a health plan, MCS Advantage, Inc., and its network administrator, Eye Management of Puerto Rico, LLC.

The complaint alleged that MCS asked Eye Management to create and manage a network of ophthalmologists in Puerto Rico in order to lower its costs after Medicare reduced its premiums. After MCS and Eye Management sent proposed contracts to individual doctors offering lower rates for the new network, OFTACOOP convened a meeting during which its member and non-member ophthalmologists agreed not to sign the new contracts. Shortly after the meeting, OFTACOOP also sent an email to more than 100 ophthalmologists with the subject line "DO NOT SIGN THE MCS/EYE MANAGEMENT AGREEMENT," which instructed them to refuse to sign the proposed contract so they could collectively negotiate with payors through OFTACOOP.

Despite a cease-and-desist letter from Eye Management's counsel warning of antitrust violations, OFTACOOP persisted in encouraging members to unite together to refuse to deal with Eye Management. As a result, Eye Management was unable to form an adequate network of ophthalmologists. The ophthalmologists then also refused to contract directly with MCS at lower rates, and many cancelled or threatened to cancel their existing contracts with MCS, forcing MCS to maintain its current reimbursement rates.

The FTC determined that the conduct was not reasonably related to achieving any efficiency-enhancing integration, and would unreasonably restrain competition and increase costs of ophthalmology services.

The proposed consent order, entered January 19, 2017, prohibits OFTACOOP from, among other things, organizing agreements to refuse to deal with payors or to deal only through OFTACOOP, and forbids information exchanges to facilitate that prohibited conduct. The public comment period closed last week and the consent order is expected to be made final shortly.

Financial and Clinical Integration

As the FTC noted in OFTACOOP, there are certain types of efficiency-enhancing integration, although not present in that case, which may justify pricing agreements among independent health care providers. A physician network joint venture that is appropriately integrated (financially or clinically) will not be condemned as per se illegal, but will instead be analyzed under the rule of reason – a more lenient standard that weighs pro-competitive benefits against anticompetitive harms.

Financial Integration

Provider joint ventures in which participants share substantial financial risk will qualify for rule of reason review and may also fall within an antitrust safety zone if they have sufficiently low market share – less than 30 percent of physicians in that specialty in the geographic market if the venture is non-exclusive, or less than 20 percent if exclusive. Antitrust law presumes that efficiencies will be created by arrangements that involve significant risk sharing (typically the risk is shared both among the providers in the venture and between the venture and the payor) because they provide incentives for physicians to control costs and better manage the provision of services. Examples of qualifying risk-sharing arrangements include capitation, agreements to provide services for a set percentage of revenue, incentive contracts that withhold and distribute compensation based on meeting group performance goals, and agreements to provide a course of treatment for a fixed amount.

Clinical Integration

Antitrust enforcement agencies have recognized that clinical integration may be evidenced by a "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 cooperation among the physicians to control costs and ensure quality."1 Clinical integration often requires a significant investment of time and money to develop, implement and maintain.

The FTC, largely through a series of advisory opinions, has indicated its approval of clinical integration programs containing the following features:

  • Development and adoption of practice guidelines and protocols across a broad spectrum of diseases and conditions
  • Participation by a broad range of physicians and specialists
  • Significant personal investment of time and money by physicians
  • Technical infrastructure to support electronic information sharing
  • Mechanisms to monitor and enforce compliance with protocols and consequences for non-compliance
  • Allowance for non-exclusive, independent contracting so that physicians are free to join other networks and contract outside of the joint venture

The clinical integration venture must be able to not only identify efficiencies it will achieve, but to also explain why joint contracting is reasonably necessary to achieve those efficiencies. Some have successfully answered that question by pointing to the need to identify a stable network of physicians and facilitate in-network referrals.2 Ultimately, the program must be viable in the marketplace because it offers something of value to payors, not because it is collectively forced on them.

Antitrust analyses of provider joint conduct and integration are highly individualized and fact-specific, and should be carefully addressed with antitrust counsel. To discuss how these issues might impact you or your business, please contact one of the authors, or the Reed Smith attorney with whom you regularly work.

  1. Dep't of Justice & Federal Trade Comm'n, Statements Of Antitrust Enforcement Policy in Health Care (1996), § 8 (B)(1).
  2. See Norman PHO Advisory Opinion Letter (February 13, 2013) at 10.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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