On February 13, 2013, the Federal Trade Commission (“FTC”) issued an advisory opinion letter stating that it “has no present intention to recommend an enforcement action” against the Norman Physician Hospital Organization (“PHO”). The Advisory Opinion is important because it provides guidance on activities that may constitute legally permissible clinical integration even though such integration may consolidate market power.  

On February 13, 2013, the Federal Trade Commission (“FTC”) issued an advisory opinion letter stating that it “has no present intention to recommend an enforcement action” against the Norman Physician Hospital Organization (“PHO”). The Advisory Opinion is important because it provides guidance on activities that may constitute legally permissible clinical integration even though such integration may consolidate market power.  

PHO proposes creation of a clinically integrated network of physicians. PHO consists of the Norman Regional Health System (“NRHS”), which owns the only hospital in the Norman, Oklahoma area, and approximately 280 multi-specialty physicians (the “Physicians”) most of whom have clinical privileges at the Norman hospital. NRHS and the Physicians share equally in the costs associated with PHO.    

Currently, PHO utilizes a “messenger model” of contracting with payers. Under this model, PHO uses an independent third-party as a vehicle for exchanging information between PHO and payers. PHO proposes switching to a joint contracting system in which its participating physicians and hospitals will jointly set prices and contract with payers. In its advisory opinion, FTC concluded the proposed arrangement presented the risk that PHO could “exercise market power” in the sale of hospital and physician services because payers likely would not have “practical alternatives to contracts with the PHO.”

U.S. antitrust laws prohibit agreements among competitors that fix prices or allocate markets. Such agreements are called “naked” agreements and are per se illegal. However, if an agreement is likely to achieve significant efficiencies that benefit consumers and the only way to achieve such efficiencies is through an agreement that has anticompetitive results, FTC applies the “rule-of-reason” analysis. Under the “rule-of-reason” analysis, FTC determines whether the potential efficiencies and consumer benefits outweigh any anticompetitive effect.

The Advisory Opinion states PHO’s proposed arrangement qualifies for “rule-of-reason” analysis “because the network reportedly will require its participating physicians to integrate their clinical services in a manner that appears to create the potential for significant efficiencies that benefit patients and payers and because the participating physicians’ pricing agreements are reasonably necessary and subordinate to their integrative activities.”

The Advisory Opinion states that, while PHO proposes a joint contracting system that may present the risk that PHO could “exercise market power” and result in anticompetitive effects, the proposed infrastructure and operations appear to have been carefully crafted to alleviate any antitrust concerns by encouraging well-defined processes that represent clinical and financial integration, including:

• True Clinical Integration. PHO and its participating physicians propose several mechanisms “intended to monitor and control costs and utilization,” enhance patient care, and develop evidence-based clinical practice guidelines. Several Physician advisory groups and committees would be responsible for establishing, monitoring, and enforcing compliance with clinical practice guidelines. Additionally, PHO would utilize an electronic platform that allows “a high degree of transparency and visibility” into Physician practice patterns and performance, and payers and patients would have access to this electronic platform.
• Significant Physician Commitment. The Physicians would have to satisfy credentialing and medical staff requirements, pay a membership fee and annual dues, be subject to reimbursement withholds, comply with PHO clinical practice guidelines, and serve on at least one advisory group or committee. Participating physicians would also purchase computer equipment and software licenses to access PHO’s electronic platform and make their practice data and medical records available via such platform.
• Non-exclusivity. PHO will not attempt to force payers to contract with it, will allow participating physicians to contract individually with payers who do not desire to contract with PHO, and will clearly communicate to payers and the Physicians that the network is non-exclusive.
• Antitrust Counseling. PHO also proposes that it will commit to counseling and training participating physicians about antitrust behavior, as well as the prevention of disclosing competitively sensitive information among competing providers.

The Advisory Opinion is important for healthcare providers because it provides a framework to work within when attempting to achieve clinical integration that might otherwise provoke FTC to pursue an enforcement action.