It is not uncommon for a physician organization to act as an intermediary between its physician participants and third-party payers to facilitate the negotiation and acceptance of reimbursement rates and other payer contract terms.
However, when facilitation becomes negotiation and a PO accepts contracts with third-party payers on behalf of physician participants, also known as “single-signature contracting,” a PO may be unintentionally engaging in illegal “price-fixing” in violation of antitrust law.
Under Section 1 of the Sherman Act, it is illegal to engage in horizontal price fixing arrangements. This includes circumstances where PO physician participants, who are otherwise competitors in the market, collectively agree or disagree to a third-party payer’s terms. As a result, if a PO negotiates and unilaterally accepts or rejects rates on behalf of all its physician participants, it must proceed with caution and comply with Section 8 of the Department of Justice and Federal Trade Commission in their Statements of Antitrust Enforcement Policy in Health Care.
Single-signature contracting is not always a violation of antitrust law. The DOJ and FTC (the “Agencies”) specifically outline “safety zones” by which such conduct is permitted, provided that there are no extraordinary or unusual circumstances involved with respect to the arrangement. Such safety zones include:
Exclusive Networks: Exclusive POs are those where the PO’s physician participants are restricted in their ability to, or do not in practice, individually contract or affiliate with other POs or health plans. Exclusive POs generally will not be challenged by the Agencies if two conditions are met: (1) the PO’s physicians share in “substantial financial risk”; and (2) the physicians constitute 20 percent or less of the physicians in each physician specialty with active hospital staff privileges who practice in the relevant geographic market.
Non-Exclusive Networks: Non-exclusive POs are granted a similar safety zone, provided that the PO’s physician’s share substantial financial risk and they comprise 30 percent or less of the physicians in each physician specialty with active hospital staff privileges who practice in the relevant geographic market and share substantial financial risk.
There are a variety of well-accepted models that may be implemented by the PO to meet the financial risk requirement of the safety zones. These can include contracts containing capitated rates, services provided for a pre-determined percentage of a premium or revenue from a plan, or financial withholds. Whatever mechanism a PO selects to ration financial risk among its physician participants, it should be carefully structured and evaluated by the PO’s attorney to ensure compliance with the Agencies guidelines.
RULE OF REASON
If a PO engages in single-signature contracting and the PO is not within the requirements of a safety zone, it does not mean an antitrust violation is imminent. When no safety zone applies, single-signature contracting will be evaluated as to whether it is likely to produce procompetitive efficiencies, and whether those procompetitive efficiencies outweigh the anticompetitive effect which may result from the arrangement. This is known as the “rule of reason” analysis. There are two accepted circumstances when this analysis may be applied:
Substantial Financial Risk: If a PO falls outside of a safety zone, it may still satisfy the rule of reason if there is sufficient financial risk-sharing by the participating physicians. The Agencies recognize that substantial financial risk-sharing incentivizes physicians to strive for a common efficiency goal that may offset anticompetitive risks associated with the arrangement.
Clinical Integration: If the PO does not have significant financial risk-sharing, it may otherwise satisfy the rule of reason by establishing that the PO is likely to produce significant efficiencies. This includes having an active program within the organization that evaluates and modifies practice patterns of PO physician participants in order to improve cooperation among physician participants, decrease costs, and improve quality of care. Ultimately, any such program will be evaluated on the basis of whether the program: (1) establishes mechanisms to monitor and control utilization of health care services that are designed to control costs and assure quality of care; (2) selectively chooses PO physicians who are likely to further these efficiency objectives; and (3) provides for significant investment of capital, both monetary and human, in the necessary infrastructure and capability to realize the claimed efficiencies.
If a PO does not fall within a safety zone and cannot satisfy the rule of reason analysis, a PO’s single-signature contracting arrangement could be determined to be per se illegal.
However, there is an acceptable alternative known as the “messenger model.” By strictly adhering to the processes required under a messenger model, the PO would most likely not face antitrust concerns nor be challenged by the Agencies.
Under the messenger model, an agent of the PO or neutral third-party will act as an intermediary between each individual physician participant and the third-party payer. A critical distinction between the messenger model and single-signature contracting is that the messenger model requires that each physician participant makes independent, unilateral decisions regarding the rates or terms he or she is willing to accept, reject, or counter-offer. The “messenger” in this circumstance cannot interfere with that independence. Some circumstances that may undermine a compliant messenger model structure and result in a per se illegal arrangement include circumstances where is the messenger shares information among physician participants, fails to deliver offers to physicians or counter-offers to third-party payors, or the messenger gives suggestions to physician participants regarding whether or not the physician participant should accept or reject an offer.
Regardless of whether a PO adheres to single-signature contracting or a messenger model, careful consideration and consultation with counsel is a must to ensure the PO’s compliance with antitrust laws.
Jessica L. Russell is an attorney in Dickinson Wright’s Healthcare Practice group. She advises corporate clients on matters related to corporate governance, contracting, regulatory compliance, and licensing. Jessica regularly counsels clients in highly regulated industries and is experienced in resolving compliance and licensing matters with state and federal regulatory agencies. Some of Jessica’s notable experience includes representation of clients in the health care industry.
L. Pahl Zinn is a member in Dickinson Wright’s Healthcare Practice group. His extensive counseling and litigation experience includes successfully representing clients in complex commercial litigation, antitrust/trade regulation lawsuits, corporate compliance and internal investigations. Pahl’s unique cross-section of experience distinctively positions him to counsel health care clients as they navigate complex antitrust, intellectual property and/or trade regulation issues.