Clinical integration model gets FTC green light

An advisory opinion by the Federal Trade Commission giving the go-ahead to an Oklahoma physician-hospital organization is an encouraging development to physicians looking to join clinical integration health care models, legal observers said.

In a Feb. 13 opinion, the FTC's Bureau of Competition said it had no intention of challenging the proposed formation or operation of the Norman (Okla.) Physician Hospital Organization, a partnership between the Norman Regional Health System and the Norman Physicians Assn. FTC staff concluded the network's proposed activities, which include potential pricing agreements, “appear unlikely to unreasonably restrain trade.”

The opinion is significant because it is the first FTC ruling about such a network since the enactment of the health system reform law, said Peter A. Pavarini, an Ohio attorney and president-elect of the American Health Lawyers Assn. PHOs are legal or informal organizations that in general form a bond between hospitals and their attending medical staff. The organizations typically are developed for the purpose of contracting with managed care plans.

“This is the first new [opinion] that has come out since the Affordable Care Act,” Pavarini said. “It's encouraging, and I think important in the sense that it appears that federal antitrust agencies are following what is happening in the industry, and they are attuned to the changes coming about in the private sector, not just because of the ACA but [also due to] economic forces.”

The FTC's opinion on the Norman PHO provides a general framework for doctors and hospitals that want to develop “multiprovider” networks, said Jay L. Levine, a Washington attorney and partner at Bradley Arant Boult Cummings LLP who specializes in antitrust issues. Multiprovider networks are described by the commission as ventures among health professionals that jointly market their health care services to health plans and other purchasers. The ventures may contract to provide services to plan subscribers at jointly determined prices, and agree to controls designed to contain costs and assure quality.

“More and more providers are going to want to join forces to try to share in cost savings but at the same time improve efficiencies,” Levine said. “With the increase in medical information technology, clinical integration is certainly at the top of the list for a lot of providers. These advisory opinions are very helpful as to what one needs to consider at the outset when you're establishing a multiprovider network.”

PHOs experienced setbacks in past

Physician hospital organizations are not a new concept. The entities became popular in the early 1990s as hospitals and physicians combined services to offer a more attractive full-service product to managed care payers. To be considered a PHO, an organization must be either financially or clinically integrated, said Pavarini, who spoke about PHOs during the AHLA's Physicians and Physician Organizations Law Institute in February in Phoenix.

However, past PHOs often were not successful, because the groups rarely had the infrastructure to manage the risk assumed under contracts with managed care organizations, he said. In addition, health information technology was in its infancy, and some doctors' lack of willingness to share clinical data disrupted attempts at clinical integration. Health professionals also faced antitrust concerns because of pricing agreements among PHO-participating health professionals.

“From an antitrust standpoint, you have issues whenever you have independent competitors coming together to do joint contracting,” Levine said.

But in previous advisory opinions, the FTC has said such networks can operate legally if they can demonstrate that the proposed cooperation among doctors and hospitals has the potential to lower health care costs and improve quality of care. The agency reaffirmed this stance with the Norman PHO opinion, legal observers said. Norman PHO, which has 280 participating physicians in 38 specialty areas, requested an advisory opinion from the FTC on its proposed clinical integration model in 2011. The model possibly will involve horizontal pricing agreements for the provision of physician services.

The PHO already has implemented some pieces of the model, but it wanted the FTC's feedback before moving forward more aggressively, said Michael Joseph, an attorney for Norman PHO. “Joint contracting can create anti-competitive concerns, and we didn't want to have concerns on the part of the doctors that they might be engaging in some sort of illegal activity.”

In reviewing the proposal, the FTC found that the anticipated pricing agreements and contracting activities were not barred under antitrust laws. The opinion noted that the arrangement will be nonexclusive, meaning that participating physicians will remain free to contract independently of Norman PHO with any payer that chooses not to contract with the network.

“Norman PHO's proposed joint contracting appears to be subordinate to the network's effort to improve efficiency and quality through the clinical integration of its participating physicians,” said Markus H. Meier, assistant director of the Health Care Division for the FTC's Bureau of Competition.

Should doctors join PHOs?

Clinically integrated health care models no doubt will continue into the future, although they probably will not be called PHOs, Pavarini said. Because of the rocky history, some people have a negative view of the term, he said.

Although PHOs of the 1990s were set up in an open, all-exclusive way, PHOs of today will be much more discriminating, he said. In the past, “when a hospital formed a PHO, they invited every member of their medical staff, whether or not they were all qualified. Today's networks are going to be much more selective. You're going to know that all the doctors in this network are all of the same quality.”

Doctors also have more options today in choosing what type of clinically integrated network to be a part of, legal experts said. This includes accountable care organizations in which participants must meet quality standards for care and patient safety, and are held accountable for controlling costs for beneficiaries under their groups. PHOs and ACOs are not mutually exclusive, Pavarini said. A PHO could become an ACO under the Centers for Medicare & Medicaid Services definition, or the entity could decide not to participate in the government shared savings program and contract with private payers only. ACOs generally are more suited for doctors with high Medicare patient loads, Pavarini said.

The FTC's opinion on the Norman PHO provides a comprehensive outline for doctors and hospitals entering into a clinically integrated network, Levine said.

“When you're up and running, that's when the concerns can start,” he said. Questions can arise, such as “whether or not you're functioning correctly, whether you're not sharing information that you should be sharing, or whether there is” potential for spillover anti-competitive effects.

The FTC opinion notes the safeguards adopted by Norman PHO to protect against such spillover effects. These include ongoing antitrust training for health professionals and mechanisms to prevent improper disclosure of sensitive information among competing professionals.