New rules aid provider-sponsored networks
Advocates say it’s too soon to gauge reaction
Changes in federal antitrust guidelines and proposed legislation offer hope for physician practices struggling to compete with managed care organizations. However, you should proceed cautiously into this brave new world, experts say.
When the revised guidelines were introduced in August, there was a positive response from doctors and the medical societies interested in establishing such networks, says Edward Hirshfeld, JD, vice president for health law at the American Medical Association (AMA) in Chicago.
Reaction has been mixed, however, among lawyers active in antitrust issues. Yet how those attorneys respond is critical, because they will tell their clients whether a proposed network is likely to face legal challenge. "That’s where the rubber hits the road," Hirshfeld says. The AMA worked for more than three years to loosen previous guidelines, partly because the earlier rules built legal barriers to provider networks. Because of the barriers, attorneys frequently advised their clients against forming many ventures.
But in the wake of the new guidelines, the AMA is taking a wait-and-see attitude and is no longer pushing for legislative change, Hirshfeld tells Physician’s Managed Care Report. "We’re waiting to hear what the reaction from the field is," he says. Unless the AMA begins to hear an "outcry" from physicians, no further legislative push is planned this year, he adds. Meanwhile, U.S. Rep. Henry Hyde (R-IL), who chairs the House Judiciary Committee, has reintroduced a congressional bill first presented in February 1996, but it was not at the urging of the AMA, Hirshfeld says. "We’ve decided to give it a rest," he says.
That legislation would exempt some networks from current laws holding that certain venture arrangements are illegal on their face, and would require federal agencies to analyze a network’s effect on competition before taking antitrust action.
The revised guidelines issued by the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC), both of which enforce antitrust laws, do the following:
• Allow some networks that pay physicians on a fee-for-service basis. The agencies previously required that network physicians assume financial risks that fee-for-service payments do not present.
• Slightly loosen the "messenger model" form of contract negotiation so an agent can assume power of attorney for a network’s physicians.
• Emphasize that networks sometimes can be larger than "safety zones" described in 1994 guidelines, and give examples of larger networks that are legal.
Kevin Grady, JD, an antitrust attorney with Atlanta law firm Alston & Bird, sees the new guidelines as benefiting providers. "Clearly [the new standards] want to preserve innovation," Grady says. "If you are indeed structuring a network properly, if you are indeed integrating practices and offering new services, generally what the policy statements reaffirm is that the agencies are in favor of that."
An expensive proposition’
The 1994 guidelines set out two types of safety zones. One zone was for exclusive networks, in which doctors agree to route all contract agreements through that group. Exclusive networks that have no more than 20% of the physicians in any given specialty in the network’s geographic market are considered to be inside the safety zone.
The other zone was for non-exclusive networks, which allow members to work with other organizations. These networks are in the safety zone as long as they contract with no more than 30% of the market’s physicians in any specialty.
The safety zones are so called because networks that fall within those numerical boundaries are virtually safe from legal action on antitrust grounds; the DOJ and FTC say they’ll act against them only under "extraordinary" circumstances.
"If you’re investigated and sued, you’re in for a very expensive proposition, without question," says Jeff Miles, JD, antitrust lawyer at Ober, Kaler, Grimes & Shriver, Washington, DC.
Given that potential cost, it isn’t surprising that some antitrust lawyers told their clients to limit their networks to the safety-zone size to avoid any legal risk. However, the 20% and 30% limits made it difficult to compete with health care ventures organized by nonphysicians. For one thing, the small networks couldn’t offer patients the physician choice that larger organizations could promise.
In the new guidelines, the DOJ and FTC repeatedly state that many networks that don’t fall within the safety-zone limits are lawful, and refer to approvals that the agencies have given to ventures with as many as 50% of a specialty’s physicians in a given region.
They also describe two examples of larger networks that likely would be legal:
1. A network that practices in a competitive market.
The agencies recognize that if a market area has many physician networks or plenty of doctors who could form competing networks, it’s unlikely that one venture which allows members to work with other groups would threaten competition.
2. A venture that gives different physicians different incentives.
Say, for example, that a core group of doctors owns a network, and contracts with additional physicians. Since the owner physicians have a strong financial interest in controlling costs that the others incur, the owners also have an incentive not to drive up the market’s health care costs.
New rules lack more definitive’ criteria
Even with those changes, however, some lawyers remain disappointed that the 20%/30% limits were not explicitly raised. For example, Bruce G. Goodman, JD, a partner in corporate and health care law at Hinckley, Allen & Snyder in Boston, notes that the two federal agencies have lost some court cases involving larger ventures. He recognizes that the guidelines provide "a lot of examples that will help people in the gray zones understand which way the regulators are leaning," but says he wishes the new rules outlined "more definitive" criteria.
Physician network providers did win some key points in the new guidelines, however. Foremost among them is the decision by the DOJ and FTC to allow two types of ventures that pay physicians on a fee-for-service basis. Payment according to a fee schedule to which the physicians agree previously had been a major sticking point because of the agencies’ fears that such an arrangement could result in price-fixing that would hinder competition.
Now, however, the DOJ and FTC will allow fee-for-service physician networks if:
• There is adequate clinical and functional integration of the venture’s physicians.
Examples of such integration include setting up mechanisms to monitor and control costs and quality of care, investing enough time and money to ensure that the network operates efficiently, and selecting physicians who are most likely to work cost-effectively.
• The network gives financial rewards to member physicians who meet utilization goals, or penalizes members who don’t meet such goals.
Different ways to define risk
It’s unclear whether member physicians must be subject to both the reward and the penalty; the AMA believes that providing just a reward is adequate, as long as the bonus is large enough to motivate physicians to attain it.
The guidelines also allow new ways in which networks can pose a financial risk to member physicians. Previously, the two agencies recognized only per-person, capitated payments and fee-withhold arrangements as constituting financial risk. The new types of risk include:
• percentage-of-premium arrangements, in which networks agree to provide certain services for a set percentage of a plan’s premium revenue;
• global fees, where a venture agrees to provide treatment that is complex or lasts for an extended time period for a fixed amount;
• financial rewards or penalties for utilization targets, similar to the set-up for fee-for-service networks.
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