Advisory Opinion to Johnston (01-23-96)

January 23, 1996

Christopher C. Johnston
Sullivan, Stolier & Daigle
Suite 2600
909 Poydras Street
New Orleans, La. 70112-4000

Dear Mr. Johnston:

This letter responds to your request for an advisory opinion on behalf of a group of urologists in the New Orleans area who intend to establish a limited liability company to be known as URONET of Louisiana, L.L.C. ("URONET"). URONET will contract with managed care companies to provide urology services on a capitated basis.

According to the information you have presented, URONET will be an independent physician association owned by and composed of 19 urologists who practice in the New Orleans Metropolitan Area and surrounding parishes.(1) These physicians constitute approximately 22% of the urologists who practice in URONET's market area.(2) URONET members were selected based on their practice locations, hospital affiliations, and reputation in the community for providing quality patient care. The number of urologists invited to participate in the network was based on the need to provide patient services throughout the metropolitan area and at all the major New Orleans hospitals; URONET members practice at various locations in the metropolitan area, and collectively maintain staff privileges at approximately three quarters of the acute care hospitals located in the area.

If a managed care plan with which URONET wishes to contract specifically requests access to additional practice locations or urologists with staff privileges at additional local acute care hospitals, three more urologists could be invited to participate in panels to be submitted to those payers.(3) In that event, URONET would include approximately 26% of the urologists practicing in the market area.(4) These additional physicians would not become member/owners of URONET.

Membership in URONET will be non-exclusive. Members and participants will be free to participate in other physician networks, or to contract individually with payers or managed care organizations. Virtually all owner-members currently participate in a variety of managed care plans, including health maintenance organizations and preferred provider organizations.

URONET intends to contract with payers on a capitated basis. Contracts will be negotiated by Physicians Health Corporation ("PHC") as agent for URONET.(5) Contract proposals will be approved by URONET's medical director, who is a member/owner elected by the other members. Participation contracts agreed to by the payer and by PHC and URONET’s medical director will be submitted to each member, who will decide individually whether to participate in the contract. Members will not be required to participate in any particular contract.

Based on the facts presented in your request for an advisory opinion, as summarized above, it does not appear that the formation or operation of URONET, as proposed, is likely to violate the antitrust laws. This opinion is based on our understanding of the facts as explained in your letters; we have not conducted an independent investigation, and our assessment could change if the facts change significantly.

Under Statement 8 of the Statements of Antitrust Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust, jointly issued by the Commission and the Department of Justice, the federal antitrust enforcement agencies will not challenge, absent extraordinary circumstances, "a non-exclusive physician network joint venture comprising 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 risk."(6) The members and participants of URONET will share substantial financial risk through the acceptance by URONET of capitated contracts; they comprise less than 30% of the urologists practicing in the area that you represent is the relevant market(7); and participation is non-exclusive.(8) Accordingly, the proposed operation of the network appears to fall within the terms of the safety zone.(9)

You also have asked whether URONET's operation would comply with antitrust law if some or all of its contracts with managed care operations are not on a capitated basis. We cannot answer that question, since you have not provided specific information about how such contracts would be structured. In order for us to evaluate a proposal involving non-capitated contracts, we would need to have specific facts relating to that proposal.

For the reasons discussed above, the formation and operation of URONET as a network accepting capitated contracts, as described above, would not appear to violate the antitrust laws. This letter sets out the views of the staff of the Bureau of Competition, as authorized by the Commission's Rules of Practice. Under Commission Rule § 1.3(c), 16 C.F.R. § 1.3(c), the Commission is not bound by this staff opinion and reserves the right to rescind it at a later time. In addition, this office retains the right to reconsider the questions involved and, with notice to the requesting party, to rescind or revoke the opinion if implementation of the proposed program results in substantial anticompetitive effect, if the program is used for improper purposes, if facts change significantly, or if it would be in the public interest to do so.

Sincerely yours,

Robert F. Leibenluft
Assistant Director

  1. According to your letter, the Greater New Orleans Metropolitan Area includes Orleans, Jefferson, St. Tammany, St. Bernard, St. Charles, St. James, Plaquemines, and Tangipahoa Parishes.
     
  2. URONET provided a print-out of all urologists listed with the Louisiana State Board of Medical Examiners for the parishes within the URONET service area.
     
  3. One of the urologists maintains an office in LaPlace, Louisiana, which is approximately 30 miles northwest of New Orleans. The other two urologists practice together in Slidell, Louisiana, which is 10 to 15 miles northeast of New Orleans.
     
  4. URONET's 22 members and participants constitute 30.5% of the urologists in Jefferson Parish; 29 % of the urologists in St. Tammany Parish; 15% of the urologists in Orleans Parish; and all of the urologists in St. Bernard and St. Charles Parishes (three urologists in St. Bernard and one in St. Charles).
     
  5. PHC will obtain market and fee information from payer data or published statistics; it will not collect information concerning the current charges of participating urologists.
     
  6. United States Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust at 68-69 (September 27, 1994), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,150 (1994) ("the Statement"). The Statement defines a physician network joint venture as "a physician-controlled venture in which the member physicians collectively agree on prices or other significant terms of competition and jointly market their services." Id. at 66.
     
  7. We have not conducted an independent investigation of whether the Greater New Orleans Metropolitan Area constitutes a market.
     
  8. The Statement provides that networks must be non-exclusive in fact as well as in name in order to qualify for the safety zone. Indicia of non-exclusivity discussed in the Statement include: the existence of viable competing networks or plans; the participation by network providers in other networks, or in individual contracts with health plans; evidence that network providers earn substantial revenue outside the network; the absence of any indication that network providers have withdrawn from other networks; and the absence of any indication that the providers in the network have coordinated with respect to price or related terms of participation in other networks or plans. Statement at 69.
     
  9. Because the proposed network falls with the safety zone even if the non-owner members are considered to be equivalent to owners, we need not consider whether our analysis of the competitive significance of participation of these members might differ from our analysis of participation by owners.