Advisory Opinion to Janello (12-07-95)

December 7, 1995

Martin Janello
Waterfall, Economidis, Hanshaw, Caldwell & Villamana, P.C.
Williams Centre
Eighth Floor
5210 East Williams Circle
Tucson, Arizona 85711

Dear Mr. Janello:

This letter responds to your request on behalf of Southern Arizona Therapy Network, Inc. ("SATNET"), for an advisory opinion concerning the legality of a provider network that SATNET proposes to establish. SATNET is a non-profit corporation organized by 18 physical, occupational, and speech therapy providers practicing in Pima County, Arizona. SATNET's 18 individual and entity providers include 40 physical therapists, or 13% of the estimated 300 physical therapists practicing in Pima County; 11 occupational therapists, or 6% of the estimated 187 occupational therapists in Pima County; and 4 speech therapists, or 1% of the estimated 345 speech therapists practicing in Pima County.

According to your letter, SATNET was established to market the therapy services provided by SATNET's participating providers, to facilitate the negotiation of individual contracts between SATNET members and third-party payers, to preserve and enhance quality, and to provide education. Participation in SATNET is non-exclusive, and members will be free to join other networks or managed care programs and to contract with payers outside SATNET.

SATNET proposes to establish mechanisms for the exchange and discussion of non-fee related information and issues among SATNET members, and to discuss non-fee related issues with third-party payers who might be interested in contracting with SATNET members. Non-fee related issues are defined in your letter to include, but not be limited to, "mechanisms for referral and scheduling of patients, mechanisms for quality assurance, standards of practice, provider credentialing, mechanisms for patient tracking, the number of enrollees in a plan, demographics and probable therapy utilization needs and capacities, and peer review mechanisms." Specifically, SATNET members or an agent employed by SATNET would collect non-fee related information and data from payers and SATNET members; analyze the needs of the payers and the SATNET providers regarding non-fee related issues; and discuss those issues with SATNET members and payers "in view

of the possibility of future contracts between individual SATNET members" and payers. Based on these actions, SATNET or its agent would render "non-binding recommendations" to payers on "non-fee procedures and structures that will probably be acceptable to most SATNET members" in future contracts with members. Payers would be free to offer other procedures and structures.

With respect to fee-related issues, SATNET would employ an agent who would conduct a survey of the historical prices charged by SATNET providers for therapy services and the cost per visit of providing those services. The collection and dissemination of this information would be done in accordance with the conditions contained in the safety zones for collection and exchange of fee-related information contained in Statements 5 and 6 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.(1) This information would be shared with payers and with SATNET members; but members would not discuss the information with one another.

Finally, SATNET would invite offers of proposed contracts from payers to individual SATNET members. SATNET would examine all contract offers to determine if all non-fee related categories were addressed by the offers, notify payers if such information were found to be missing, and upon receipt from the payer of notice providing or declining to provide additional information, would present the offers to members without comment or recommendation. SATNET members would individually decide whether or not to accept a particular proposal, and communicate their responses to SATNET, which in turn would notify the payer which providers had accepted the offer. Based on the number of members accepting the contract, a payer would decide whether to proceed to execution of final contracts with SATNET members. The members would be informed of the number and identity of providers who had accepted or rejected the contract.

In addition, SATNET may decide to negotiate, with payers, contracts providing for the payment of a predetermined capitation rate to the group as a whole. For the limited purpose of providing capitated services, SATNET members would discuss capitation rates and structures and related issues. Except insofar as necessary to provide capitated services, SATNET members would not discuss fee-related issues or engage in collective negotiations.

Based on your description of the proposed operation of SATNET as summarized above, it appears that the proposed course of action is not likely to violate the antitrust laws. As is explained below, neither the collection and dissemination of information contemplated by SATNET, nor the proposed procedures for contracting, appear to raise concern under the antitrust laws. This opinion is based on our understanding of the facts as explained in your letter; we have not conducted an independent investigation, and our assessment could change if the facts change significantly.

Health care providers' collective provision to payers of non-fee-related information is discussed in Statement 4 of the Heath Care Statements. As that Statement notes, "collective provision of non-fee-related information by competing health care providers to a purchaser in an effort to influence the terms upon which the purchaser deals with the providers does not necessarily raise antitrust concerns."(2) At the same time, it cautions that providers "who collectively threaten to or actually refuse to deal with a purchaser because they object to the purchaser's administrative, clinical, or other terms of dealing run a substantial antitrust risk."(3) The types of discussions that SATNET envisions go beyond the terms of the safety zone in Statement 4. Based on the information contained in your letter, however, these discussions do not appear to threaten competition. I understand that SATNET will not negotiate or enter into agreements with payers, and SATNET members will not agree among themselves on terms of dealing with payers.

SATNET's proposals relating to the collection, exchange, and dissemination to payers of information about the historical prices charged by SATNET members fall within the safety zones contained in Statements 5 and 6. While the safety zones do not include the collection and dissemination of cost information, SATNET intends to satisfy the conditions contained in the safety zones with respect to this information. Under the circumstances described in your letter, this activity does not appear to raise concerns under the antitrust laws.

Finally, SATNET's plan to act as a messenger between its members and payers in order to facilitate the contracting process does not appear to raise antitrust concern. The messenger model is discussed in Statement 9 of the Health Care Statements. If properly implemented, the messenger model avoids a horizontal agreement on price, and thus does not raise concerns about price fixing among the participating providers through the network joint venture.(4) Networks using the messenger model need not be economically integrated.(5)

It is our understanding that SATNET providers will make individual determinations on whether or not to accept the prices offered by the insurance/managed care companies.(6) SATNET will simply be a messenger between the insurance/managed care companies and the individual SATNET providers, and will not negotiate fees on behalf of the providers. Under these circumstances, the proposed operation of SATNET does not appear likely to violate the antitrust laws.

Your letter indicates that in the future, SATNET may decide to enter into contracts with payers that obligate its members to provide covered services to patient groups in exchange for a predetermined capitation rate. As is discussed in Statement 9 of the Health Care Statements, joint pricing by otherwise-competing members of a multiprovider network does not inherently violate the antitrust laws if the members of the network share substantial financial risk. Acceptance of capitation contracts is one example of such financial risk sharing.(7) Consequently, the operation of the network on a capitation basis would be evaluated under the antitrust rule of reason. In light of the small size of SATNET's proposed provider panel relative to the number of therapists available in the market, it is unlikely that operation of SATNET as a risk-sharing network would endanger competition in the market.(8)

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) (1994), 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,

David R. Pender
Acting Assistant Director

  1. 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) ("Health Care Statements"). Specifically, the survey will be conducted by an independent third party; the information surveyed will be more than three months old; all SATNET members will be surveyed; data that is disseminated must include information of at least 5 members; no one provider's data will represent more that 25%, on a weighted basis, of any reported statistic; and the information disseminated will be sufficiently aggregated so that the prices or costs of any particular provider cannot be identified.
  2. Id. at 44.
  3. Id. at 46.
  4. Health Care Statements at 95.
  5. Id. at 94.
  6. SATNET must take care to ensure that the decisions by its members on whether or not to accept the proposed contracts in fact are made individually, and do not involve any tacit agreement among the providers not to deal, or to deal only upon certain agreed-upon terms. Similarly, care should be taken in conveying information to payers to assure that payers understand that such information is simply to help the payers formulate their proposals to SATNET's members; that the payers are free to propose whatever contractual terms and offers they wish to those providers; that payers remain free to deal individually with some or all of SATNET members and are not required to deal through SATNET; and that SATNET has no power or authority to make offers, negotiate, agree for, or bind its members. See Health Care Statements at 94-96.
  7. Id. at 92.
  8. Statement 8 of the Health Care Statements provides a safe harbor for physician network joint ventures that comprise 30 percent or less of the physicians in each specialty with active staff privileges who practice in a market, if the network does not impose any significant explicit or implicit restrictions on the ability of its members to affiliate with other organizations or to contract individually with health benefit plans, and the physician members share substantial financial risk. While the safe harbor does not apply to non-physician networks, which may involve issues relating to product market definition that would be difficult to address in the context of a safety zone, our analysis of competitive effects of a non-physician network of health care providers would be governed by principles similar to those underlying the safety zone.