From international law firm Arnold & Porter Kaye Sholer LLP comes a timely column that provides views on current regulatory and legislative topics that weigh on the minds of today's physicians and health care executives.
* * * *
As health care becomes more highly regulated and payer markets evolve, more and more physician practices are searching for ways to provide patients with a simpler, more user-friendly health care experience and payers with a more efficient, one-stop-shop approach to contracting. Forming provider networks, often among different specialties, is one way to do so.
Many such networks have formed and achieved great success, both in providing superior care and obtaining more favorable payment terms, but formation is not simple and not without risk. Physician groups must consider a range of corporate and regulatory impediments, including the Stark Laws and Anti-Kickback statute restrictions, and failure to do so exposes physician groups to significant legal and regulatory risk. For example, while the success of a network will depend, in part, on its ability to maximize the referrals from participating physicians, rewarding physicians for doing so can create serious enforcement risk.
However, there is another area of risk that providers sometime overlook — the very substantial risk of antitrust enforcement. Independent providers are competitors, and when competitors agree to stop competing, the antitrust laws come into play. If competitors get together and agree on the price that they are going to charge, that can be considered price fixing. There is a difference, of course, between a smoke-filled room full of conspirators and a group of medical professionals forming a more efficient health care network and jointly pricing those services to payers, but even for the latter group there are limitations and antitrust risk. Jointly pricing your medical services with a competitor is very risky unless certain rules are followed. The Federal Trade Commission has a very active program of enforcement in this area and through the years has investigated and sued numerous physician groups for price-fixing because they did not meet the required antitrust standards for joint pricing.
There are several ways that providers can collaborate and engage in joint pricing, but each requires significant advance planning and most important, adherence to the regulatory requirements and applicable antitrust laws.
Option 1 : Acquisition
You can merge with another competing practice. Depending on how big the practices are and how much the deal is worth you might be required to file a pre-merger notification under the Hart-Scott-Rodino Act, and the antitrust agencies might review it to see if the merger creates any anticompetitive effects. If they do not challenge the transaction you can formally combine the practices and price jointly, because you have become one business unit.
Option 2 : Joint venture/network
You can form a joint venture, which in this context is known as a"partially integrated network.&" The antitrust laws consider a merger to be a complete integration, and a joint venture as a partial integration, where the providers maintain some level of independence but also work together on certain issues and, of course, set prices together.
If you do not qualify as a partially integrated network, but you price jointly with a competitor, as a matter of antitrust law you are guilty of price-fixing.
However, if you qualify as a partially integrated network, then the agencies evaluate the network under what is known as the "rule of reason," and look at the competitive effects of the network, balancing all the procompetitive benefits and efficiencies against any anticompetitive harms. Most provider networks that are evaluated under the rule of reason avoid antitrust liability, especially if they do not have dominant market shares in the local market and payers retain other options to form networks.
There are two ways to qualify as a partially integrated network under the antitrust laws — financial integration or clinical integration.
Financial integration is the tried and true way to form a network — most independent practice associations are financially integrated.
The antitrust standard for financial integration is that the members of the group must be "sharing substantial financial risk" and that risk must be shared at a group level. In other words, if one of the providers orders too many tests or fails to treat a patient according to group protocols, that cost must be borne by the group, not just by the individual.
The antitrust laws consider such a network to be acceptable because sharing risk creates incentives for the providers to work together to become more efficient and provide better care, which benefits patients. (If a network provides a service that is not part of the risk sharing arrangement, then it should not be jointly priced — that would be considered price-fixing as to that service.)
There are several forms of financial integration widely accepted as appropriate — capitated contracts, agreements to provide services for a set percentage of premiums or revenue, or financial incentive contracts that withhold from or reward the physician groups based on group performances, and quality-based risk sharing could also qualify.
If a network is financially integrated, and only accounts for a small share of the specialty market in that area, then it faces minimal antitrust risk. Even larger combined networks can significantly diminish antitrust risk if they are "non-exclusive," meaning that members of the network are free to participate in other, competing networks and that payers are free to negotiate individually with members of the network if they so choose.
Clinical integration is the other method to justify joint pricing, and it is difficult and time consuming to implement because it is not precisely defined — it is more art than science.
One common description of a clinically integrated network is: An active ongoing program to evaluate and modify the clinical practice patterns of the health care providers who participate in a network, to create a high degree of interdependence and cooperation among the network's participants to control costs and ensure quality.
There are two key aspects to a clinical integration program that meets antitrust requirements.
First is interdependence. The providers must truly be working closely together, almost as one practice in terms of clinical approach. It generally requires a substantial ongoing investment of time, money and effort to ensure the integration.
Thus, a program that meets the antitrust agency requirements for successful clinical integration routinely includes the following features, designed to monitor and control costs and improve quality across the network:
Development and use of disease management and patient-care coordination protocols and performance standards;
Development and implementation of provider training on these protocols and standards;
Use of electronic health record systems to facilitate exchange of health information across the network, to monitor compliance with standards and analyze and report on performance, utilization, cost and/or quality on an individual and aggregate basis; and
A system to enforce, update and improve such standards.
The second key aspect to a successful clinical integration program is that the providers must be able to answer this question: Why do you need to jointly price your services to gain the efficiencies of the network?
In most instances, the answer is that without the ability to jointly price it would be difficult to sustain the investment in integration and that joint pricing provides a mechanism to ensure that all the collaborating physicians are working together towards the same clinical and efficiency goals. (As a practical matter, for this reason most clinically integrated networks are multi-specialty provider networks. It is more difficult to explain the rationale for a clinically integrated network that does not include multiple specialties.)
Even if a network is clinically integrated it still may face antitrust challenge depending on its size in the local market. Antitrust analyses of these issues are heavily fact dependent and beyond the scope of this article, but as you assess this risk consider your current market share and what that share would be after the creation of the network. Are you the biggest provider in your relevant market? If you combined, would payers be able to put together a network without you? (When considering any of these options the antitrust risk decreases significantly if your payers endorse the plan.) Would it be difficult for other networks to compete against you?
Option 3: A referral network
A local referral network is not jointly pricing medical services and therefore does not create the potential antitrust risk of the integrated network options described above. In a referral network model, the medical services are still individually being negotiated between the various providers and the payers. The network provides a clinical structure and sets standards that must be met by the individual providers, and in effect is selling that assurance of clinical quality to the payers. This may allow the providers access to a wider range of payers and provide efficiencies, thus making the network worthwhile to providers and payers.
If the providers are free to join different referral networks, and the payers can still contract with providers outside of the network, the referral network does not limit competition and creates very limited antitrust risk.
The rapid evolution of the health care market requires providers to consider a range of options to best meet patient and financial imperatives. The antitrust laws recognize that there are patient and efficiency benefits created when providers work together, but different forms of collaboration create different levels of opportunity and risk, which are all highly fact-specific. Those risks should be carefully assessed before moving forward.
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.