What the FTC's Recent Advisory Opinion on Clinical Integration Means for Hospitals

Last week, the Federal Trade Commission issued an advisory opinion that Norman (Okla.) Physician Hospital Organization's proposed clinical integration program was not likely to prompt antitrust scrutiny. It's been several years since the last regulatory opinion on a clinical integration model, and this one had a few unique caveats worthy of providers' attention — particularly physician groups or hospitals pursuing a new clinically integrated model.  

Background on Norman PHO
Norman PHO was founded in 1994 and includes about 280 participating physicians from Norman Physicians Association, as well as the hospitals within the public Norman Regional Health System. It requested the FTC's advisory opinion on its proposed clinical integration model, in which the PHO will "contemplate" horizontal pricing agreements for the provision of physician services. The arrangement will be non-exclusive, meaning that participating physicians will be free to contract independently of Norman PHO with any payor that chooses not to contract with the network.

Norman PHO's proposed structure includes the development and adherence to clinical guidelines for up to 50 conditions, a new electronic medical record and health IT platform, and the creation of new committees to oversee quality improvement and specialty services. The PHO has already established a new organizational structure to better support its proposed model and ensure more collaboration between participating physicians. This new organizational structure includes a mentor's committee and a quality assurance committee, whose duties include monitoring individual and group performance with network standards and administering corrective actions as necessary. The other governance groups are specialty advisory groups, which will develop and update clinical guidelines. The PHO also appointed a medical director and new employees to specifically support the clinical integration program.

Caveats in the FTC's advisory opinion
R. Dale Grimes, JD, head of the antitrust practice at Bass Berry and Sims in Nashville, Tenn., says there are a few unusual aspects of this FTC advisory opinion. One of the most remarkable is that, when it requested the opinion, Norman PHO said that it could not "'quantify…the likely overall efficiency benefits of its proposed program, or specify how overall cost or quality efficiency gains will be measured.'"

"You have to present this to the FTC before you commence operations, so there will always be some aspect of speculation about [the model]," says Mr. Grimes. "But by the same token, it was kind of odd to me that [Norman PHO] didn't seem to have anything to present about how they expected to measure it. That seems unusual to me in light of other opinions."

The non-exclusivity is another notable featureof this proposed arrangement. By and large, this is seen as a strengthening element for a clinically integrated model in terms of competition. "Non-exclusivity is certainly something that is embedded in how the FTC and Department of Justice have looked at loosely integrated PHOs for a long time," says Mr. Grimes. "By that, I mean that for a network to be non-exclusive is almost always looked upon as a good thing from the competitive analysis." One reason for this is that the PHO does not present itself as an aggregation of numerous practices that could potentially exert pricing power, but allows health plans to contract with some rather than all of the participating practice groups.

The leeway the FTC granted Norman PHO in this advisory opinion is also worthy of comment, according to Mr. Grimes. The FTC did recognize some potentially anticompetitive effects, noting that Norman PHO "appears to have the potential to exercise market power in the sale of its participating hospitals' and physicians' services," due to including a "substantial portion" of physicians in the Norman-area holding clinical privileges at the only hospital in Norman. Nonetheless, the FTC pointed to the non-exclusive nature of the proposed model as a mitigating factor for this potentially anticompetitive effect.

"What's unique about this letter is that the FTC did recognize there could be some anticompetitive effects, and did recognize that [Norman PHO] couldn't demonstrate procompetitive effects. And yet the FTC is giving them latitude on that," says Mr. Grimes. "The trump card is that it's not exclusive. If it had been exclusive, then all bets might have been off."

The FTC does not hide its emphasis on the non-exclusive nature of the proposed arrangement, and how that single characteristic influenced the green-light opinion. The agency said: "If, contrary to these representations, Norman PHO were to operate as a de facto exclusive network, it would raise serious concerns and could be necessary to revisit the issue of Norman PHO's market power and reevaluate whether staff would recommend an antitrust enforcement action."  

One other noteworthy aspect of Norman PHO's proposed arrangement is the safeguards it put in place to protect against spillover effects. This includes individual firewalls to prevent physicians from accessing sensitive contracting information with payors, as well as antitrust training for providers. This training is especially proactive, more so than the average compliance training, alerting physicians that they cannot act in concerted refusals with payors if the payor does not agree to the clinically integrated network's terms. "That's a difference between a clinical integration program versus getting together and denying payors," says Mr. Grimes.

Main takeaways for other providers
Mr. Grimes says the Norman PHO "basically touched on all the buttons" that have been previously iterated by the FTC. "The learning from this is that [the FTC] is being more flexible in saying, 'We don't need to see it demonstrated right now.' And also, the whole idea about the necessity for non-exclusivity," he says.

This was the first FTC opinion on a clinical integration model in several years. The timing of it — years after the passage of the healthcare reform law and the implementation of CMS' accountable care organizations — makes this regulatory thumbs-up all the more interesting. "It shows the FTC is not changing its direction, but by the same token, they may show more willingness to say, 'We'll let you try it and hope it works. We're not going to stand in the way from the outset, because consolidation and working together interdependently is imperative right now,'" says Mr. Grimes.

More Articles on Hospitals and the FTC:

Oklahoma's Norman Regional Gets FTC OK for Non-Exclusive Network With 280 Physicians
Supreme Court Sides with FTC in Phoebe Putney Case
Renown Health Pays $4.2M to Cardiologists Under Settlement

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