This is part two of a two-part article. Part one appeared in the Spring 2005 Health Law Alert and is available at www.ober.com/shared_resources/news.

This article addresses the practical implications for providers of the DOJ Antitrust Division and Federal Trade Commission's (FTC) joint report issued July 23, 2004, Improving Health Care: A Dose of Competition (the Report), concerning the joint hearings on health care and competition law and policy held during 2003. Part one of this article contained an overview of the Report's scope and its broad lessons, and then specifically examined the Report's discussion of hospital-related issues. In this second part, the article turns to the Report's discussion of physician issues.

Physicians: Continued Enforcement Priorities and New Integration Guidance
As is the case with hospital enforcement, the Report's discussion of physician issues, comments by agency officials on the Report after it was released, the sheer number of cases recently filed (and usually simultaneously settled) against provider networks, and the increasing severity of remedies obtained in those cases demonstrate the agencies' continued if not heightened antitrust enforcement agenda relating to physicians. At the same time, the Report endorses new financial integration mechanisms and increased flexibility in recognizing clinical integration in analyzing the legality of provider network joint ventures.

Provider Network Joint Ventures
In his remarks at the press conference announcing the release of the report, then-FTC Chairman Timothy Muris commented on the audacity and large-scale of provider networks engaging in naked price fixing two years ago. Echoing those comments, the head of the FTC's health care enforcement section stated that the number of networks violating the antitrust laws was striking. In the two years since then, the FTC has filed suit and/or entered into consent decrees in 19 provider network cases. Although the use, or more accurately the misuse or abuse, of the messenger model (an arrangement that allows contracting between payors and unintegrated providers while avoiding price-fixing by those competing providers) was the source of the antitrust violation in most of those cases, the Report provides no new guidance on this issue. (For a description of the messenger model and hearing panelists' testimony on whether such arrangements even are a useful business model, see Report, ch. 2 at pp. 14-17.)

Increasingly Severe Remedies
Instead, the Report focuses primarily on the remedies for this and other antitrust violations resulting from provider networks. The Report states that "much more stringent measures" are necessary for flagrant or repeated violations, and also for those who facilitate violations by others. See Report, Executive Summary at p. 28. Assistant Attorney General Hew Pate highlighted this aspect of the Report in his comments at the same press conference mentioned previously, warning that DOJ would not hesitate to pursue criminal remedies in the health care arena where warranted in cases of egregious conduct. In later presentations, DOJ officials have stated that the Antitrust Division does not have any set guidelines but will evaluate whether to apply criminal remedies in health care matters on a case-by-case basis. The same official took pains to dispel the notion that criminal remedies are never appropriate in health care matters, and noted that DOJ has considered criminal action in several recent matters but ultimately decided to pursue only civil relief.

Additionally, the Report states that disgorgement and/or dissolution will be sought in appropriate health care cases. Subsequent comments by agency officials explain that dissolution will be appropriate where there is "no procompetitive justification whatsoever" for the violative conduct, and that disgorgement or restitution will be sought where the violation is clear, there is a reasonable basis to calculate the amount of the defendant's "unjust enrichment," and this remedy will be valuable because other remedies including criminal prosecution or private actions are unlikely.

Provider Responses to Payor Monopsony Power
Another question addressed in my earlier paper was whether payors possess monopsony power in health care markets in the United States, and if so, what can physicians legally and effectively do to "level the playing field." See William E. Berlin, Antitrust Issues Affecting Physicians and Physicians Organizations, AHLA Health Lawyers Weekly, June 11, 2004, note v, at pp. 2-8. Several days of testimony at the hearings (April 24-25 and May 7, 2003) were devoted to the monopsony power issue. The Report unambiguously summarizes those findings by stating that "the available evidence does not indicate that there is a monopsony power problem in most health care markets." Report, Executive Summary at p. 27; ch. 2 at p. 21; see generally ch. 6.

The Report also clearly rejects (or, more accurately, reaffirms the Agencies' prior rejection of) countervailing market power as a tool for physicians to combat real or perceived payor market power. Countervailing market power is the aggregation of market power through otherwise unlawful collusion by physicians. In fact, agency officials stated that "leveling the playing field" is never a justification for price fixing. They explained that it is impossible to determine the degree of countervailing power that would be proper, and even if possible, there is danger of spill-over from the market power theoretically proper to balance the payor's market power to additional market power unreasonably restraining competition. And the agencies take a particularly dim view of physician (or, for that matter, hospital) collusion to impede perceived innovative contracting practices discussed elsewhere in this article such as pay-for- performance arrangements or tiering mechanisms.

This section of the Report concludes that "[t]o the extent monopsony power exists in some markets, the Agencies and state Attorneys General should address such matters on a case-by-case basis." Report, ch. 2 at p. 22. The Report explains that it is preferable to use antitrust enforcement to address monopsony power rather than to allow physicians to accumulate countervailing market power. Following its own advice, the Justice Department scrutinized potential health plan monopsony power resulting from two recent health plan mergers. Although neither merger was ultimately challenged, the DOJ's statements on the closing of each merger investigation (one issued only three days before the Report) highlighted the respective investigations' focus on whether the merger between two plans would create market or monopsony power. The two health plan mergers were Anthem, Inc.'s acquisition of Wellpoint Health Networks, Inc. and UnitedHealth Group's acquisition of Oxford Health Plans. The reasons identified by the DOJ for closing each merger investigation included the fact that the merging plans were not particularly close competitors, consumers would have a number of other choices after the merger, and one of the plans had a small share in the markets in which the parties overlapped.

The Report and comments by agency officials also emphasized that not only the acquisition through mergers, but also the improper use or abuse of monopsony power (i.e., monopsony conduct) is a concern. The Report indicates that this can be a competitive concern where, for example, a health plan with monopsony power imposes a most-favored-nations (MFN) contract provision to deter hospitals or other providers from granting discounts to competing health insurers. An MFN is a contractual agreement between a plan and provider that requires the provider to sell to the plan on pricing terms at least as favorable as the pricing terms under which that provider sells to any other plan. A monopsonist health plan's imposing an MFN can create a barrier to entry by new competing health plans or increase their costs, thus making the rival plan a less effective competitor. The agencies, and particularly the DOJ, have brought several cases challenging insurers' imposition of MFNs (although none since 1999). Agency officials caution, however, that it is not a violation for a health plan simply to pay providers less than they seek in contract negotiations.

As is the case regarding hospital issues, the Report's guidance on responses to health plan bargaining or monopsony power is not limited to private parties. In the context of addressing mechanisms to "level the playing field" between physicians and payors, the Report concludes that state governments (or for that matter, the federal government) should not enact legislation permitting collective bargaining by independent physicians. According to the agencies, collective bargaining leads to higher prices and is unlikely to result in higher quality care.

Finally, in the Report the agencies encourage physician information sharing provided that it is conducted pursuant to the analytical framework of Healthcare Policy Statement 6 to provide adequate safeguards ensuring the information is not used for anticompetitive ends. As noted in my earlier paper, the Statement 6 conditions are very specific and may be hard to meet, so information sharing may not be an effective mechanism for many physicians to "level the playing field" in negotiating with payors.

Financial and Clinical Integration
On the bright side for physicians, the Report specifically identifies another form of financial integration that the agencies will recognize in conducting joint venture analysis of provider networks under the antitrust laws, and also promises increased flexibility in analyzing clinical integration arrangements by provider networks.

Healthcare Policy Statement 8, last revised in 1996, describes how the agencies evaluate physician network joint ventures, and in outlining the analysis that will be applied to joint ventures, Statement 8 notes that "physicians' integration through the network is likely to produce significant efficiencies that benefit consumers, and any price agreements . by the network physicians [that] are reasonably necessary to realize those efficiencies" will be evaluated under the antitrust rule of reason (which balances those efficiencies against anticompetitive effects) rather than summarily condemned as per se illegal. See Healthcare Policy Statement 8, note ii. Statement 8 provides examples of acceptable, substantial financial integration through risk-sharing such as capitation, global fee arrangements, fee-withholds, and cost- or utilization-based bonuses or penalties.

In keeping with the Report's emphasis on improving measures of price and quality, giving consumers more information on prices and quality, and giving consumers and providers greater incentives to use such information, the Report recognizes that payment for performance (P4P) arrangements among physicians may constitute a form of financial risk sharing in addition to those mechanisms outlined in Statement 8. P4P arrangements generally "align financial incentives with the implementation of care processes based on best practices and the achievement of better patient outcomes," rewarding physicians for achieving "increasingly higher levels of safety, effectiveness, patient-centeredness, timeliness, efficiency, and equity." Report, ch. 1 at p. 8, n. 36.

Statement 8 also acknowledged that certain clinical integration arrangements could produce sufficient efficiencies to justify joint negotiation by providers; however, Statement 8 has been criticized for failing to provide adequate guidance and detail specifying the parameters of acceptable clinical integration. The Report expressly seeks to fill that void, and contains considerable discussion of the indicia and applicable analytical framework the agencies will apply in evaluating clinical integration arrangements. The four primary indicia of clinical integration identified in the Report are: (1) the use of common information technology to ensure exchange of all relevant patient data; (2) the development and adoption of clinical protocols; (3) care review based on the implementation of protocols; and (4) mechanisms to ensure adherence to protocols. The Report also contains a broad outline of the types of inquiries the agencies are likely to make when analyzing the competitive implications of a clinical integration arrangement. Those questions merit repeating here:

What do the physicians plan to do together from a clinical standpoint?
- What specific activities will (and should) be undertaken?
- How does this differ from what each physician already does individually?
- What ends are these collective activities designed to achieve?
How do the physicians expect actually to accomplish these goals?
- What infrastructure and investment is needed?
- What specific mechanisms will be put in place to make the program work?
- What specific measures will there be to determine whether the program is in fact working?
What basis is there to think that the individual physicians will actually attempt to accomplish these goals?
- How are individual incentives being changed and re-aligned?
- What specific mechanisms will be used to change and realign the individual incentives?
What results can reasonably be expected from undertaking these goals?
- Is there any evidence to support these expectations, in terms of empirical support from the literature or actual experience?
- To what extent is the potential for success related to the group's size and range of specialties?
How does joint contracting with payors contribute to accomplishing the program's clinical goals?
- Is joint pricing reasonably necessary to accomplish the goals?
- In what ways?
To accomplish the group's goals, is it necessary (or desirable) for physicians to affiliate exclusively with one IPA or can they effectively participate in multiple entities and continue to contract outside the group?
- Why or why not?

See Report, ch. 2 at pp. 40-41.

Finally, the Report and particularly subsequent comments by agency officials emphasize that they do not endorse any particular model for financing and delivering health care or any particular structure with which to achieve clinical integration for fear that this would channel market behavior. Instead, the agencies encourage market participants to develop innovative arrangements on their own that are responsive to their own efficiency goals and market conditions. In turn, the agencies will flexibly apply Statement 8 to those integration arrangements. Agency officials noted, however, that they have seen very few P4P arrangements, and few clinically integrated provider networks (although there have been more in the last year). Agency officials and the Report also emphasize that an important overarching question in their analysis of both financial and clinical integration (reflected in the inquiries enumerated above) is the extent to which joint contracting is reasonably necessary to achieve efficient financial or clinical integration, i.e., why do the providers need to jointly negotiate prices in order to integrate? An arrangement that fails this inquiry will not pass muster.

Conclusion
The Report clearly has practical implications for physicians and hospitals. Although those providers may not like all of the agencies' findings and conclusions based on the testimony and commentary adduced at the joint hearings, the Report and subsequent elaboration by officials provide specific guidance on issues such as contracting practices and negotiations with payors, and the contours of permissible affiliation through mergers or joint ventures, as well as an indication of the FTC and DOJ's enforcement agenda in the health care sector over the next few years. s

Prior to joining Ober|Kaler, Mr. Berlin was involved in managing and conducting the Joint Hearings on behalf of the DOJ, and was the moderator for several sessions.

The DOJ/FTC joint report is available on the FTC's website at: http://www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf.

The agendas, transcripts, presentations, and written comments from each session of the joint hearings, including those topics addressed in more detail in this article, are available at: www.ftc.gov/ogc/healthcarehearings/index.htm. The 1996 Healthcare Policy Statements are available at www.ftc.gov/reports/hlth3s.pdf.