Polsinelli Antitrust webinar 6.2015

Polsinelli PC. In California, Polsinelli LLP
Antitrust Rules for Provider Collaboration:
How to Form and Operate a
Network of Competing Providers
Gerald A. Niederman
Mitchell D. Raup
June 4, 2015
#50458303

real challenges. real answers. sm
Agenda:
Antitrust Rules for Provider Collaboration
 The contemporary health care
environment
 Integration strategies for provider networks
 Key legal issues
 Practical advice for network development
2

The Basic Paradigm
 The strong business rationale for
collaboration:
– Affordable Care Act Imperatives
– Parallel commercial market demands
– Overall movement towards value-based
reimbursement: the demand for quality and
cost-containment
3

The Basic Paradigm (continued)
 Continued tension between provider
collaboration and conventional antitrust
principles:
– Promotion of health care reform is NOT a
defense
– No special treatment for providers
– Payor and regulatory skepticism towards
provider collaboration
 Goal = Achieve business success in a
legally-compliant manner
4

Antitrust Risks of Collaboration
 Collective pricing may be per se illegal price-
fixing.
 Collective contracting behavior may constitute a
refusal to deal or other unlawful restraint of
trade.
 Agreements allocating patients may violate
Sherman Act § 1 as an illegal market allocation.
 If market shares are high, the provider network
or other joint venture may violate the Sherman
Act § 2, which prohibits monopolization and
attempts to monopolize.
5

Basic Questions to Begin
the Antitrust Analysis
 What is the purpose of the network?
 What decisions will providers make jointly?
 What information will be shared among
providers?
 Will the network be exclusive?
 What market share will the network have?
 What integration strategy can best
promote antitrust compliance?
6

FTC and DOJ Guidance on Provider
Networks
 Statements of Antitrust Enforcement
Policy in Health Care (August 1996)
 Statement of Antitrust Enforcement Policy
Regarding Accountable Care
Organizations (October 2011)
 Advisory opinions on specific networks
– Four approved
– One rejected
7

Integration Strategies
 Integration is a fundamental issue for
provider networks.
 Networks without legally-sufficient
integration may not:
– jointly negotiate price,
– allocate services to eliminate duplication, or
– enter into any other agreements that would be
deemed anti-competitive and illegal for a
group of competitors.
8

Collaboration Strategies
 Clinical integration
 Financial integration
 Hybrid strategies (clinical and financial)
 Single-entity strategies
 Messenger model (no integration)
9

Clinical Integration
 The classic definition:
– “An active and ongoing program to evaluate and
modify practice patterns . . . and create a high
degree of interdependence and cooperation . . . to
control costs and ensure quality.”
 Other attributes of successful clinical integration
– Reduce unwanted variations in care
– Focus on evidence-based medicine
– Data analysis and benchmarking to improve
outcomes
– Transparency and accountability
10

Clinical Integration (continued)
 A key ingredient for providers in a value-based
reimbursement environment
– CMS and private payors drive overall movement from
volume to value in emerging reimbursement
methodologies
– Care management and care coordination are key
predicates to achieve success in changing health
care landscape
– Clinical integration embodies and deploys tools
needed to achieve success in important areas
 Accountable care organizations and population health
management
 Bundled payments for defined episodes of care
11

Legally valid clinical integration generally requires:
 A clear set of cost and quality goals;
 Selectively choosing providers;
 Significant investment of resources, both human and
financial;
 Informed use of electronic health records;
 Adopting and implementing evidence-based clinical
guidelines; and
 In-network referrals to participating specialists.
 A genuine clinically integrated network seeks qualitative
and quantitative improvements in health care delivery
12

 There is no formula or list of required steps to
achieve the goal.
 The key issue is whether the network’s clinical
integration has a real likelihood of changing
providers’ practice patterns and thereby
achieving the network’s cost and quality goals.
 Current convergence of market-driven reforms
and antitrust compliance requirements presents
significant incentives to proceed forward.
13

 Clinical integration takes time.
 Providers ask: “How much clinical
integration do I need before my network
can negotiate payer contracts without fear
of liability for per se illegal price-fixing?”
 The antitrust enforcement agencies have
offered two answers.
14

1. FTC Advisory Opinion to Norman PHO:
 Non-exclusive network;
 Clinical practice guidelines;
 Electronic records allow network to monitor and
enforce clinical guidelines;
 Providers commit to follow guidelines;
 Substantial ongoing investments of capital to support
systemic innovation;
 Providers must commit to new practice regimen or are
ineligible to participate.
15

2. FTC/DOJ Statement on Antitrust and
Accountable Care Organizations (ACOs): If a
network is approved by CMS and participates in
the Medicare Shared Savings Program, DOJ and
FTC will presume that:
 The network is clinically integrated;
 Price negotiations are ancillary to legitimate goals;
and therefore
 Collective provider negotiations with commercial
payers may be deemed permissible rather than
forbidden as per se illegal antitrust violations
16

Other Compliance Strategies
 Financial integration
 Hybrids
 Single entity
 Messenger model
17

Financial Integration
 All network providers “share substantial
financial risk in providing all the services
that are jointly priced through the network.”
 Risk-sharing gives all providers a financial
incentive to help the network reduce cost
and improve quality.
 “Substantial financial risk” means enough
to influence practice patterns.
18

Financial Integration (continued)
Integration by contract between providers:
 Providers co-own network, and share in its
profits and losses as owners;
 Contractual joint venture, to share some or
all profits and losses on network business;
 Contribute a substantial share of revenue
to a risk pool, to be paid back only if the
network meets its cost and quality goals.
19

Integration through the network’s contracts
with payors:
 Capitation or case-rate contracts;
 Withhold arrangements;
 Bonus, shared savings and other pay-for-
performance contracts.
20

 Financial integration can be achieved
quickly, by contract.
 The key issue is whether financial
integration gives providers incentives to
reduce costs that outweigh the normal fee-
for-service incentive to increase costs.
21

Hybrid strategies
Many successful networks use a combination
of clinical and financial integration:
 Networks offer providers financial incentives to
follow clinical guidelines, or to achieve cost or
quality goals;
 Pay-for-performance contracts with payers, tied
to clinical integration goals;
 Clinical integration positions network to accept
risk.
22

Single-Entity Strategies
 Most networks make decisions by
agreement among providers, which are
reviewed under the rule of reason.
 But a tightly integrated network may be
considered a single entity.
 A single entity can’t conspire with itself; its
decisions are not agreements and
therefore can’t be challenged under § 1.
23

Single-Entity Strategies (continued)
Limited case law:
 Copperweld (U.S. 1984): parent and
subsidiary are a single entity.
 Texaco v. Dagher (U.S. 2006) (dicta): a
corporate joint venture is a single entity.
 Susquehanna (M.D. Pa. 2003): a
contractual joint venture is a single entity.
24

Medical Center at Elizabeth Place (S.D.
Ohio 2014): A hospital joint operating
agreement created a single entity.
 Central management with all “operational,
strategic, and financial control”;
 Sharing of all income, profits and losses;
 “All of the money goes to one bottom line.”
 Held: No § 1 liability, because “incapable
of conspiring.”
25

 Maximum antitrust protection if your
network’s members are willing to
–pool all income,
–share all profits and losses, and
–delegate all business decisions to
network management.
 No need to share ownership of assets.
26

Messenger Model
 Competing providers who are not
integrated can form a network, but they
can’t agree with each other on price.
 Each provider must negotiate his own
contract with the payer.
 The messenger can facilitate that
negotiation by conveying offers and
counteroffers.
27

Messenger Model (continued)
The messenger may:
 Analyze a payer’s offer and compare it to others.
 Negotiate contract terms other than price.
 Communicate offers and acceptances.
 Compile providers’ minimum acceptable prices.
 Be authorized to accept offers above that price.
 Inform payers that X% of providers would accept
an offer.
28

A messenger may not:
 Be one of the network providers.
 Negotiate price.
 Coordinate individual providers’ responses.
 Encourage providers to refuse to deal.
 Disclose any provider’s price or negotiating
position to a competing provider.
 Recommend acceptance or rejection of an offer.
 Refuse to communicate a bona fide offer.
29

Messenger model strategies are risky:
 It’s easy to violate the rules
– If the messenger negotiates, or
– If the providers share information and plans.
 Any violation of the rules may lead to per
se illegal price-fixing.
30

Key Legal issues for Provider Networks:
 Enforcement agency guidance
 Per se and Rule of Reason standards
 Other important variables
– Market share
– Exclusivity
 Ancillary restraints of trade
– Spillover collusion
31

What Agreements Are Permitted?
 A properly integrated network can make
agreements that are “reasonably
necessary” to achieve the network’s
legitimate goals.
 When is joint price negotiation “reasonably
necessary” to achieve legitimate goals?
 Again, the FTC offers two answers.
32

(continued)
1. FTC advisory opinions: joint negotiation
of payor agreements is reasonably
necessary if the agreements:
 Create financial integration (e.g., capitated
agreements).
 Create clinical integration (e.g., financial
incentives for achieving clinical integration or
for achieving cost or quality goals).
 Assure the full participation of all network
providers in each payor contract.
33

(continued)
FTC advisory opinions: joint negotiation of
payor agreements is not reasonably
necessary:
 Simply to achieve higher fees (even if
providers would not participate unless paid
higher fees).
34

(continued)
2. ACO Statement:
If the network is approved by CMS and
participates in the Medicare Shared
Savings Program, the FTC will presume
that the network’s “joint negotiations with
private payers [are] reasonably necessary
to an ACO’s primary purpose of improving
health care delivery.”
35

Rule of Reason
 Unless the network is a single entity, its
actions and agreements are subject to the
rule of reason.
– Even if the network is properly integrated,
– Even if the agreement is reasonably
necessary to proper goals.
 Networks that can and do reduce market-
wide competition are at risk.
36

Rule of Reason (continued)
Market share and market power:
 Will the network have a high market share
in any specialty, in any geographic
market?
 Will the network be a “must-have” provider
for payers?
 Will the network’s joint contracting lead to
higher prices?
37

Market share and market power: How big is
too big?
 ACO Statement: 30% or less is a safety
zone, using Primary Service Area as
proxy.
 FTC’s last two successful prosecutions in
the merger/acquisition context (Promedica
and St. Luke’s) alleged shares of 80%.
 Realistic danger zone: 50% or more.
38

Exclusivity:
 Market power concerns can be reduced by
making the network non-exclusive, meaning that
providers are free to contract directly with
payers.
 In its Norman PHO opinion, the FTC approved a
network without considering its market share,
because the network would be non-exclusive.
 Must be non-exclusive in fact, not just in name.
39

Effects on cost and quality:
 Price increases signal that the network
may be anticompetitive.
 Cost reductions (if passed on to payors)
and quality improvements signal that the
network is procompetitive.
40

Do courts “balance” quality improvements
against price increases?
 FTC v. St. Luke’s (9th Cir. 2015) says no:
– “[T]he Clayton Act does not excuse mergers
that lessen competition or create monopolies
simply because the merged entity can
improve its operations.”
– “It is not enough to show that the merger
would allow St. Luke's to better serve its
patients.”
41

Does the FTC “balance” quality
improvements against price increases?
 The FTC says yes:
– The FTC will “carefully consider evidence that
the transaction will benefit consumers through
improved quality, new services and/or
decreased costs.”
– “Efficiencies may enhance a merged firm's
ability and incentive to compete.”
42

Practical Advice
 Integrate providers for the right reasons:
– to improve quality,
– reduce costs, and
– achieve better patient outcomes not just to
negotiate higher fees.
 Integration as a key driver of success in
the contemporary health care
marketplace
43

Practical Advice (continued)
 Be sure that your documents reflect your
proper purposes.
 Be sure that your discussions focus on
them.
 Bad or “merely” untutored documents can
sink a good deal.
44

 Be aware of your network’s market share
in each specialty, and how it changes over
time.
 If your share is high enough that payers
“must have” your providers, the safest
course is to be truly non-exclusive.
45

Build a product that payers will want to buy.
 Payers will pay for demonstrated
improvements in quality, efficiency and
outcomes.
 Involve payers in the development of the
network, to be sure they will support it.
46

Questions?
Thank you!!!
Gerry Niederman
(gniederman@polsinelli.com)
Mickey Raup
(mraup@polsinelli.com)
47

Polsinelli provides this material for informational purposes only. The material
provided herein is general and is not intended to be legal advice. Nothing
herein should be relied upon or used without consulting a lawyer to consider
your specific circumstances, possible changes to applicable laws, rules and
regulations and other legal issues. Receipt of this material does not establish
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Polsinelli is very proud of the results we obtain for our clients, but you should
know that past results do not guarantee future results; that every case is
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is an important decision and should not be based solely upon advertisements.
© 2014 Polsinelli PC. In California, Polsinelli LLP.
Polsinelli is a registered mark of Polsinelli PC
48

Polsinelli Antitrust webinar 6.2015

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