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

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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

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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

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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.

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Collaboration Strategies

Clinical integration

Financial integration

Hybrid strategies (clinical and financial)

Single-entity strategies

Messenger model (no integration)

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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

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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.

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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.

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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.

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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

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Other Compliance Strategies

Financial integration

Hybrids

Single entity

Messenger model

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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.

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Integration through the network’s contracts

with payors:

Capitation or case-rate contracts;

Withhold arrangements;

Bonus, shared savings and other pay-for-

performance contracts.

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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.

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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.

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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.

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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.

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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.

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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.

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(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.

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(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).

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(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

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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.

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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.

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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.

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Questions?

Thank you!!!

Gerry Niederman

([email protected])

Mickey Raup

([email protected])

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Polsinelli Antitrust webinar 6.2015

Law

Transcript of Polsinelli Antitrust webinar 6.2015