FTC Advisory Opinion Approves Collective Negotiation With Payors for Clinically Integrated Physician Network

On February 19, 2002, staff of the Health Care Products and Services division of the Federal Trade Commission's Bureau of Competition advised MedSouth, Inc., a multi-specialty physician practice association in the Denver, Colorado area, that the FTC does not intend to challenge MedSouth's proposed collective negotiation of payor contracts on behalf of members who participate in a clinical resource management program. The MedSouth advisory opinion is the first written guidance issued by the FTC addressing the amount and nature of clinical integration necessary to permit otherwise independent physician practices to collectively negotiate fees without violating federal price fixing prohibitions since the 1996 update to the Statements of Antitrust Enforcement Policy in Health Care issued jointly by the FTC and the Antitrust Division of the U.S. Department of Justice.

Under MedSouth's proposal, all physicians who are members of MedSouth physician practices will be required to participate in MedSouth's proposed clinical integration program. The program will have two major components. First, the physicians will use an electronic data record system that will permit them to access and share clinical data related to their patients, such as patient records, lab reports, treatment plans and prescription information. Second, MedSouth will monitor and analyze physician performance according to clinical practice guidelines and performance goals related to the quality and appropriate use of services. MedSouth maintains that the program will permit MedSouth physicians to improve patient care and outcomes, reduce medical errors, increase efficiency in the provision of services and reduce medical costs, and will discipline and terminate physicians who do not fully participate in the program and adhere to the program's standards.

Once its clinical program is operational, MedSouth proposes to market the services of its practice members to commercial third party payors, and to negotiate and execute contracts pursuant to which MedSouth members would provide services to health plan enrollees. All MedSouth members would be required to provide services under those contracts, although the physicians would not be precluded from participating in other networks or from contracting with payors independently.

The FTC staff opinion letter concluded that, based on the information provided by MedSouth, the group's proposed collective negotiation and contracting with payors on behalf of its members should not be deemed per se illegal price fixing. In doing so, the letter stated that the proposed program appears to be capable of creating substantial partial integration of the MedSouth physicians' practices, and to have the potential to produce efficiencies in the form of higher quality or reduced costs for health care services provided by MedSouth physicians. The letter also concluded that the collective negotiation of payor contracts appeared to be reasonably related to such integration, and to be reasonably necessary to the accomplishment of the program's objectives.

The staff letter warned, however, that the MedSouth network would be closely monitored, and that absent a demonstration that the network had achieved significant efficiencies outweighing anti-competitive effects, enforcement action would likely be recommended if MedSouth's physicians were able to use their collective power to force payors to contract with the network or to pay higher fees.

The letter relied on MedSouth's representation that its physicians have been and will continue to contract individually with payors that wish to contract in that manner. If that were not to remain the case, the staff said, enforcement action could result, given the relatively high proportion of MedSouth physicians on the medical staffs of important hospitals in the Denver area.

A copy of the advisory opinion is available at http://www.ftc.gov/bc/adops/medsouth.htm; the FTC's press release regarding the opinion is available at http://www.ftc.gov/opa/2002/02/medsouth.htm.