Two recent decisions — one by the FTC, the other by an arbitration panel — addressed similar conduct and legal issues but reached different conclusions. Both the FTC, in North Texas Specialty Physicians (NTSP), and the arbitration panel, in United Healthcare of Illinois, Inc. v. Advocate Healthcare Network (Advocate), declined to apply the per se rule in their analyses of joint negotiations with payors by a less-thanfully integrated physician-contracting network. Yet the arbitration panel in Advocate (albeit in dicta) upheld the joint negotiations, while the Commission in NTSP summarily condemned the negotiations there after a truncated analysis. See N. Tex. Specialty Physicians, No. 9312, 2005-2 Trade Cas. (CCH) ¶ 75,032 at 103,477 (F.T.C. Dec. 1, 2005), available at http://www.ftc.gov/os/adjpro/d9312/051201opinion.pdf, modified, Order Granting in Part and Denying in Part Respondent's Motion for Stay of Final Order Pending Judicial Review at 1 n.1 (F.T.C. Jan. 20, 2006), available at http://www.ftc.gov/os/adjpro/d9312/060120ntsporderromfs.pdf) and United Healthcare of Ill., Inc. v. Advocate Healthcare Network, No. 51 193 Y 01990 03 (Nov. 18, 2005) (DiLeo, Esrick, Sharp, Arbs.), available at http://www.hmltd.com/article_advocate_decision.pdf. Here, we focus on the justifications alleged in each case as well as other practical differences to explore why the tribunals arrived at divergent conclusions.

Facts and Legal Analysis
Neither the FTC nor the arbitration panel applied the per se rule to the joint negotiations of the NTSP IPA or the Advocate physician network. The FTC, in NTSP, was concerned that use of per se terminology might chill efficiency-enhancing collaborative activity among physicians, which it wants to encourage. Similarly, the Advocate panel concluded that the per se rule was not appropriate because "[t]here were no offsetting potential benefits or efficiencies from the price setting conduct" in the per se cases United proffered as authority, "unlike the present case." Advocate at 12. As a result, both tribunals used the language of Polygram Holdings, Inc. to focus on the justifications asserted in each case. In NTSP, the FTC applied the analysis from its own Polygram decision, while the Advocate panel relied on the D.C. Circuit's subsequent opinion affirming that decision. In Polygram, the FTC, relying on the Supreme Court's decision in California Dental Ass'n v. F.T.C., 526 U.S. 756 (1999), elaborated on the continuum between the strict per se and full-blown rule-of-reason standards. 5 Trade Reg. Rep. (CCH) ¶ 15,453 (F.T.C. Jul. 24, 2003), aff'd, 416 F.3d 29 (D.C. Cir. 2005). The first question under the Polygram methodology asks whether the defendant's conduct is "inherently suspect owing to its likely tendency to suppress competition." If so, to avoid summary condemnation, a defendant must provide a cognizable and "plausible reason why practices that are competitively suspect as a general matter may not be expected to have adverse consequences.or.reasons why the practices are likely to have beneficial effects for consumers."

The NTSP Decision
The FTC examined NTSP's alleged anticompetitive conduct regarding its fee-forservice contracts, including its (1) annual minimum price polls of members (by which members provided NTSP with the minimum prices they would accept), which NTSP used to determine the minimum prices it would accept in payor contract negotiations; (2) physician participation agreements, requiring members to forward all payor contract offers to NTSP and refrain from pursuing those offers until NTSP discontinued its negotiations with the payor; (3) powers of attorney obtained from members, permitting NTSP to negotiate on behalf of members and to terminate, or threaten to terminate, payor contracts as a means of extracting price concessions from payors; and (4) refusal to "messenger" contracts to NTSP members unless the payors' price offers met the minimum price requirements of at least 50 percent of its membership. NTSP at 18-24. Applying the Polygram analytical framework, the FTC found that this conduct, in the aggregate, resulted in a horizontal price-fixing agreement and thus was "inherently suspect." NTSP at 26. Accordingly, the Commission turned to the question of whether NTSP's asserted justifications for its conduct were legitimate, which required examination of whether those justifications were cognizable and plausible. NTSP's first justification was that using the physician participation agreement, powers of attorney, refusals to deal and minimum price polls helped it identify and sign contracts of interest to its risk panel physicians, ensuring "spillover" efficiencies from the risk contract to the non-risk contracts. The FTC rejected this justification because NTSP failed to articulate a "logical nexus," or link, between the activities resulting in price fixing and the claimed efficiencies. NTSP at 29.

NTSP's second justification was that the restraints in question had plausible benefits of their own. NTSP claimed, for example, that the right of first refusal and member obligations to notify it of offers they received "increase[d] NTSP's contracting opportunities." With regard to its refusal to messenger offers not meeting its minimum fee requirements, NTSP argued that its refusal was "efficient" because conveying contract offers acceptable to less than 50 percent of the physicians would waste resources. NTSP at 31. The FTC found these justifications not cognizable because they were based on an argument that competition itself is inefficient. Moreover, the evidence did not support them. Rather, it showed that the purpose for the conduct was not "to increase efficiency from spillover effects, or to conserve resources, or to spread procompetitive benefits of information sharing" but rather "to enhance bargaining clout." NTSP at 32.

Given NTSP's failure to establish a legitimate justification for its inherently suspect conduct, the FTC held that there was no need for proof of market definition or market power. Accordingly, it summarily condemned the conduct as a violation of Section 5.

The Advocate Decision
In a November 18, 2005, decision announced the day after NTSP, an arbitration panel decided a case similar to NTSP in favor of the physician contracting organization. United Healthcare, a large payor, claimed that Advocate, a Chicago-area health care system, engaged in a price-fixing agreement by contracting, and attempting to contract, with United on behalf of over 2,500 competing physicians. Advocate employed some of the physicians, but most practiced independently in the community and had privileges at Advocate hospitals.

United's claims focused on two separate contracting episodes: negotiations resulting in contracts effective between the years 2000 and 2002, and negotiations in 2003 that failed to result in a contract. Citing the District of Columbia Circuit's decision in Polygram, the panel determined that the rule of reason applied to Advocate's joint negotiations. The panel's Polygram discussion and rule of reason analysis is dicta because it initially found that the "equal responsibility" (or in pari delicto) doctrine applied as a complete affirmative defense to United's price-fixing allegations for the 2000-02 negotiations and no agreement was signed after the 2003 negotiations. Because the parties devoted substantial testimony and argument controverting the applicable legal analysis standard, however, the panel addressed the issue. The panel noted that the Polygram court explained that even if it is "obvious" the restraint impairs competition, the per se rule would not apply if the defendant identifies "'some reason the restraint is unlikely to harm consumers'" or "'some competitive benefit that plausibly offsets the apparent or anticipated harm.'" Advocate at 13 (quoting Polygram, 416 F.3d at 36). Here, the panel found "offsetting potential benefits or efficiencies from the price setting," and thus, according to the Panel, ruleof- reason analysis was appropriate. Advocate at 12. Those benefits, according to the panel, were that the joint negotiations and contracting provided United with "benefits and efficiencies in quickly assembling a stable.network without the need to seek individual contracts with thousands of physicians.." Id. at 9-13. A related benefit appeared to be that Advocate's joint contracting resulted in a product that employers found attractive. Advocate at 9.

Unlike the FTC in NTSP, the panel made no effort to examine whether the justifications were cognizable and plausible. Indeed, whereas the FTC had emphasized the necessity for a link between the challenged conduct and the justification, the panel seemed to reject that requirement. It explained that it "does not conclude, as United asserts," that "the joint contracting [must] be ancillary to the venture's legitimate pro competitive purposes and is necessary to achieve those efficiencies." Advocate at 12 n.4. Rather, it appears that any procompetitive benefits were sufficient in the panel's mind to take the price-fixing arrangement into a full-blown rule-of-reason analysis, where those benefits would be weighed against the restraint's anticompetitive effects.

Given that it determined that the rule of reason was the appropriate standard, the panel held (seemingly in the context of deciding the appropriate standard of analysis to apply, rather than in applying the rule of reason) that "the joint contracting provided United .[has] competitive benefit sufficient to offset any potential harm to consumers." Advocate at 13. Turning then to the market-power issue, the panel held that Advocate's market share, about 15 percent, was not enough to constitute market power.

Regarding the 2003 negotiations, the panel held at the outset that there could be no price-fixing violation because no agreement was ever signed. This holding appears incorrect. For example, if the reason no contract was reached was because United rejected the price established and demanded by Advocate, the establishment and use of that price would constitute a price-fixing agreement regardless of whether United accepted it. Moreover, the panel explained that, even if there were an agreement, the per se standard would not apply because the evidence established Advocate was "prepared" to proceed with a clinically integrated contract with United. In reaching this conclusion, the arbitrators identified several payors that signed agreements with Advocate for its product, which included "certain" clinically integrated services. Advocate at 18. Despite the fact that the program was "clearly a developing work in progress," the panel concluded that the "proposed" benefits from such a program "sufficiently justify Advocate's conduct in attempting to reach a joint contract with United on what Advocate characterized as a 'clinically integrated' basis." Id. Given the market power analysis conducted in the previous section, the panel concluded that United's Section 1 claim also would fail with respect to the 2003 negotiations.

Analyzing Potential Benefits and Efficiencies
Since both the FTC in NTSP and the arbitration panel in Advocate analyzed similar price-fixing claims arising out of physician network joint contracting, what explains the different result each tribunal reached? One seemingly obvious explanation is the purported business justifications offered by the respondents in each case, given the important role those justifications played in the FTC's and panel's analyses. The Commission determined that NTSP's justifications were not cognizable and implausible, while the panel concluded that Advocate's efficiencies justified its joint contracting. It is unclear from the Advocate decision whether the panel addressed the potential efficiencies in the context of deciding the appropriate standard to apply or actually as part of its full rule of reason analysis.

At first blush, it appears that the justifications proffered in each case differ in several respects. First, the Commission noted that NTSP was not sufficiently clinically integrated to justify an in-depth rule of reason inquiry regarding its non-risk contracts. NTSP at 30. In contrast, the panel in Advocate concluded that the "proposed" benefits from Advocate's clinically integrated program "sufficiently justify Advocate's conduct [in the 2003 negotiations] in attempting to reach a joint contract with United on what Advocate characterized as a 'clinically integrated' basis." Advocate at 18. In reaching this conclusion, the arbitrators identified several payors that signed contracts with Advocate, which included "certain" (unspecified in the decision) clinically integrated services. Id.

A second difference mentioned in both decisions is the reaction of payors to the alleged efficiency-generating conduct. The Commission determined that NTSP's "spillover" efficiencies justification was not cognizable because NTSP's actions were perceived by payors as an attempt to restrict their access to the "more-desired" non-risk product. NTSP at 30. In Advocate, the panel stated that both payors and providers in the Chicago area believed the joint contracting arrangements "served their interests and freely entered into [them]." Advocate at 15. This distinction highlights the importance of payors' views, and often their testimony, in provider-payor contracting disputes and litigation.

Third, the FTC rejected NTSP's claimed "team-oriented improvements in cost and quality" and "spillover" efficiencies from the risk contract to the non-risk contracts because the respondent failed to articulate a "logical nexus," or link, between the activities that facilitated price fixing and the claimed efficiencies. NTSP at 28. In other words, the FTC found that the joint contracting by the network was not necessary to achieve the claimed efficiencies. Although the Advocate decision is confusing on this point, the panel, relying on the D.C. Circuit's Polygram decision, appears to have disavowed the need to establish a link between the activities that facilitated price fixing and the claimed efficiencies, as the FTC required in NTSP. Compare Advocate at 12 n.4 with 16.

Fourth, and perhaps most significantly, the Commission stated that because there is "no antitrust exception for particularly efficient, higher quality market participants; NTSP is not entitled to 'preeempt the working of the market' to produce the result that it believes payors should choose." Id. at 30. Similarly, the FTC rejected NTSP's claims that the restraints in question — minimum price polls, physician participation agreements, powers of attorney giving NTSP exclusive negotiating rights, and its refusals to messenger contracts — were efficient for the physicians, stating that these justifications are based on the idea that competition itself is inefficient, and are not cognizable justifications that enable NTSP to increase output or improve product quality, service, or innovation. The Commission stated that a justification will fail "if it contradicts the procompetitive aim of the antitrust laws." NTSP at 31, quoting the Commission's Polygram, Inc. at 30. In contrast, the Advocate panel accepted Advocate's justification that the jointly negotiated contract was efficient for United, if not all payors, by helping United to establish and stabilize its network, providing United with substantial administrative efficiencies, and allowing payors to assemble networks of thousands of physicians "without the need to seek individual contracts." The key distinction here is that NTSP's justifications focused on efficiency for the collaborating competitor physicians, while the panel appeared to view the payors as the consumers who received benefits from the efficiency of Advocate's contracting activities.

A fifth, and more mundane, explanation for the opposite results in NTSP and Advocate is that the actual facts and evidence supporting Advocate's efficiencies simply were more compelling than those supporting NTSP's justifications. It is hard to disagree with the FTC's ultimate conclusion rejecting NTSP's claimed justifications, at least as the record is represented in that opinion. The Commission found that the purported justifications were unsupported by or simply inconsistent with the evidence that established, instead, that the reason for the NTSP's restraints was to exploit its collective bargaining leverage over payors, not to achieve efficiencies. Id. at 30 n. 45 and 32. Advocate's justifications are more difficult to assess, mainly because they are not as well detailed in the decision. The justifications may well have been fully established in the evidentiary record, however. Although neither Advocate's conduct nor its justifications are described in detail in the decision, the panel noted that the record contained 5,512 pages of hearing transcript, voluminous documents and exhibits, and over 1,000 pages of post-trial documentation. Advocate at 2. The panel stated that there was sufficient evidence that the joint contracting provided payors "competitive benefit sufficient to offset any potential harm to consumers," and one would think that, unlike NTSP, there was no compelling evidence showing Advocate's anticompetitive intent to increase bargaining clout with payers or increase prices. Advocate at 13, 17-18.

Finally, although these differences between the purported legitimate business justifications may explain the different outcomes, perhaps the question is answered by the other issues commonly addressed in a rule of reason analysis of physician contracting networks. Other factors mentioned, if not analyzed, in both decisions that may explain the different results are exclusivity of the joint contracts, market power, or actual anticompetitive effects from the physician joint contracting. NTSP had the exclusive initial right to negotiate with payors, and reinforced this exclusivity by powers of attorney appointing NTSP as the physicians' sole bargaining agent. NTSP at 4, 5. In Advocate, the panel repeatedly emphasized that the affiliated physician contracts were non-exclusive, United was free to contract with each Advocate affiliated physician, and, in fact, United was able to quickly enter into direct contracts with 90 percent of the affiliated physicians. Advocate at 10-11. The FTC stated that NTSP comprised a large percentage of physicians in Ft. Worth and had become a "gorilla network" with collective power over price. NTSP at 27, 36. In contrast, the panel in Advocate specifically found that Advocate did not have market power based on its 15 percent share of the hospital and physician markets. Advocate at 15. The Commission accepted the testimony of Complaint Counsel's economic expert finding that the negotiations using NTSP's minimum price had "a tendency to increase prices overall." NTSP at 20. The arbitration panel, however, questioned the methodology used by United's economic expert and ultimately disagreed with his conclusion that there was actual consumer harm in the form of higher prices resulting from the joint contracting. See Advocate at 13. After analyzing the respondents' asserted justifications, the Advocate panel expressly relied on this evidence in concluding that under a rule of reason analysis there would be no Section 1 violation. In NTSP, although the Commission stated it would not address market power or anticompetitive effects where NTSP did not meet its burden of establishing a legitimate justification for its inherently suspect practices, it nonetheless noted the evidence on these issues at several points in the decision. Whether or not the Commission should have even acknowledged these facts under a proper threshold Polygram analysis is questionable, but nonetheless on each of these issues the evidence clearly differed between the two cases.

Conclusion
Indeed, the differences in the evidence of exclusivity, market power, and anticompetitive effects may be greater than the differences between the purported efficiencies in each case. It can be argued that the claimed justifications in these cases are more alike than different. First, as discussed above, the Advocate panel accepted that Advocate's proposed 2004 contract would provide sufficient integration to justify an in-depth rule of reason inquiry, while the Commission determined that the non-risk contracts in NTSP were not sufficiently integrated. Yet, in both cases, the clinical integration programs were "clearly a developing work in progress" (Advocate at 18) or "not there yet" (NTSP at 30). Similarly, the panel in Advocate focused on the one-stop shopping benefits and efficiencies for payors (and, to a lesser extent, providers) resulting from joint rather than individual contracting. In NTSP, however, the Commission flatly rejected a very similar transaction cost-savings justification, although as noted above, NTSP's justification focused on the benefits to the conspiring providers themselves rather than payors. Nonetheless, the Advocate panel's approval of the single-signature contract justification seems too facile and susceptible to the FTC's criticism that the "problem with these arguments is that most efforts by competitors to collectively agree on prices could be said to save costs in negotiations with consumers." NTSP at 31. In sum, it is not unreasonable to think that the Commission may have reached the opposite conclusion under a Polygram analysis if presented with Advocate's claimed justifications.

In fact, the different results simply may be explained by the fact that a different tribunal considered each case. The Commission may be more skeptical of a defendant's claimed justifications, and indeed take a much stricter view of all the elements in a case than would a panel of commercial arbitrators deciding a contracting dispute between two business entities. This explanation seems even more plausible here, where in applying the "equal responsibility" defense at the outset to find no violation, the Advocate panel determined that the parties were "relative equals in terms of bargaining power" and "bargained for their best economic advantage in a complex market for health care insurance and services of health care providers." Advocate at 1, 9. Indeed, the panel incorporated much of its discussion of Advocate's efficiencies from its equal responsibility analysis into its justifications analysis, and no doubt the former conclusion colored the latter one. In the end, providers and those who represent them should not place too much reliance on, or draw too much comfort from, efficiencies like those articulated in Advocate. Transaction cost savings in the contract negotiation process, proposed or incomplete integration arrangements, and initial payor acquiescence in the contracting arrangement may not pass muster as justifications for past collective negotiations by competing providers when reviewed by a government enforcement agency or court.