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Federal Trade Commission Rejects Physician-Hospital Organization Clinical Integration Model

April 20, 2006

Physicians and hospitals wishing to work together to share clinical and price information now have more insight about how to construct these arrangements legally. In a March 28, 2006 Advisory Opinion, the Federal Trade Commission (FTC) rejected on antitrust grounds a proposal by Suburban Health Organization (SHO) that would have included medical management activities, quality management programs, practice support and a physician incentive plan. The SHO opinion underscores the reluctance of the FTC to approve the joint price-setting component of a clinical integration plan absent a clear factual support that joint price-setting is necessary for the plan to succeed. Absent such support, joint price-setting can subject providers to serious antitrust risk.

Suburban Health Organization (SHO)
SHO is an Indiana non-profit corporation with a 16-member board, staff of 45 full-time equivalents and a $7.9 million operating budget to undertake risk-based contracts with health plans and other payers of health care services. The FTC deemed SHO a "super-PHO," consisting of seven local physician-hospital organizations in the Indianapolis area, each affiliated with a local hospital and one multi-facility health system. The eight member hospitals of SHO employ a total of 192 primary care physicians who practice medicine at their respective hospitals.

Background on FTC Decision
The FTC rejected SHO’s proposed clinical integration model because it did not view the proposal’s exclusive agent and price-fixing components as reasonably necessary to create more efficient delivery of health care. According to the proposal, SHO would have acted as the physicians’ exclusive agent for negotiating non-risk contracts with large regional and national managed care plans. SHO would have set uniform fees for all medical services performed by the employed primary care physicians because, it argued, the clinical integration program qualifies as a new product that is inextricably linked to all medical services provided by the physicians and creates interdependency among them. However, SHO would have allowed each member hospital to market the services of its employed primary care physicians independently to small local employers and some small managed care plans. In addition, SHO hospital members would have:

  1. Jointly developed practice protocols and disease-specific treatment parameters regarding a limited set of medical conditions (such as asthma, cardiovascular disease, congestive heart failure and diabetes);
  2. Centralized collection and use of data to monitor physician behavior and outcomes with respect to the treatment protocols;
  3. Jointly produced educational materials; and
  4. Agreed to have their employed primary care physicians abide by the common practice standards through a jointly funded bonus pool to reward desirable behavior and results.

The FTC analyzed SHO’s proposed plan and found that it would be an unlawful restraint on competition for two primary reasons:

  1. Although the FTC recognized that the plan might achieve some limited efficiencies, the FTC failed to see significant interdependence among the hospital and physician members. The ability to share some program implementation costs and clinical data among SHO members did not outweigh SHO’s inability to explain how it would encourage the physicians to work collaboratively as a group or why the joint negotiation of fees was even relevant to the clinical objectives.
  2. The FTC believed that the proposal’s limited scope would undermine SHO’s ability to achieve the program’s efficiencies, noting the small number of medical conditions to be addressed and the lack of any specialist physician participants. The FTC viewed SHO’s proposed clinical integration program as a mere enhancement of medical services within each member hospital that did not require joint price setting or exclusive dealing but instead could operate sufficiently under a "messenger model. (The "messenger model" does not permit health care providers to collectively negotiate fees.)

Contrasting the SHO Advisory Opinion with the Brown & Toland Medical Group case, in which the FTC approved a joint contracting program, one can make the following observations about lawful clinical integration programs:

  1. They include physicians from most major medical specialties;
  2. They are not exclusive (member physicians can contract on their own with payers who do not contract through the program);
  3. They have data management systems that allow for extensive data collection, information sharing and utilization review;
  4. There is adequate interaction and interdependence among the participants, such as member physicians serving on committees for clinical and administrative services, jointly developed care plans for certain patients and established referral patterns among participants;
  5. There is some central authority that monitors physician compliance with the program.

Physicians and hospitals who undertake quality improvement and health information sharing initiatives must be cognizant of potential antitrust, privacy and fraud and abuse violations.

If you are looking to initiate quality improvement programs with other medical providers and require additional information, please contact any member of the Godfrey & Kahn Health Care Practice Group.

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