Advisory Opinion to Sahli (11-08-95)

November 8, 1995

Richard J. Sahli
Assistant Director
Columbine Family Health Center
562 Gregory St.
P.O. Box 20
Black Hawk, CO 80422

Dear Mr. Sahli: 

This letter responds to your request for an advisory opinion on the legality under the antitrust laws of a "patient sorting" provision that Columbine Family Health Center ("Columbine") wishes to insert into a joint operating agreement that it is renegotiating with Provenant St. Anthony Hospital ("Provenant") concerning the operation of a clinic in Black Hawk, Colorado. For the reasons explained below, it does not appear that the proposed contract term, if agreed to by the parties, would violate the federal 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.

According to your letters requesting an advisory opinion, as supplemented by telephone conversations with FTC staff, Columbine is a rural health care clinic that provides medical care in Gilpin County, Colorado.(1) Provenant operates a regional acute care hospital in Denver, Colorado, about 30 miles from Black Hawk. Columbine is a non-profit corporation that receives both state and federal funding. Although Columbine offers services to patients regardless of financial status, one of its primary purposes is to provide medical care to indigents. Columbine has been operating in Gilpin County for 16 years. It entered into the joint operating agreement with Provenant in 1993. Your letter states that the joint operating agreement was necessary for Columbine to maintain its operations as a provider of medical services to residents of Gilpin County and adjoining Clear Creek County, because it was otherwise financially impossible for Columbine to continue to provide comprehensive medical services. According to your letter, Provenant entered into the agreement in order to benefit from the goodwill established by Columbine through its past years of operation in the area.

Provenant supplies the building in which the clinic is situated, and four physicians who provide services at the clinic. Columbine employs one physician to provide services at the clinic. Under the joint operating agreement, each party operates at predetermined hours that overlap only in part.(2) Columbine provides primary medical care during its hours of operation. Provenant provides urgent care and occupational medicine during its hours of operation, and provides primary medical care during the hours when Columbine is not open. Each party provides its own managerial and administrative functions, employs its own medical and administrative staff, and retains all income derived from its operations at the clinic. Provenant leases the land on which the clinic sits, and has provided a temporary facility and furniture and equipment sufficient for both parties' operation.(3) The parties share space within the clinic. All supplies are procured by Provenant, and Columbine reimburses Provenant at cost for the supplies it uses. The parties are discussing the development of a permanent clinic in the future.

The joint operating agreement governs such issues as the allocation of costs among the parties,(4) the occasional sharing of employees, sharing of medical records, fund raising, insurance, space allocation, and dispute resolution. The agreement has expired, and is being renegotiated by the parties. Columbine would like to add to the agreement a "patient sorting" provision governing the referral of patients for follow-up care, and providing that Columbine will provide all the primary medical care during its hours of operation, and that Provenant will offer only occupational medicine and urgent care during those hours. You state that this provision describes the understanding held by the parties when the joint operating agreement was first developed. The provision would not prevent Provenant from providing medical services in Gilpin County outside the jointly operated clinic, and would not override the expressed preferences of particular patients.(5)

According to your letters, Gilpin County and adjoining Clear Creek County currently have 11 physicians, other than those employed by Columbine and Provenant, who provide primary, occupational, or urgent medical care services. Moreover, Columbine estimates that over 74 percent of Gilpin County residents travel to Denver for primary and other medical care services.

It appears, from our review of the draft joint operating agreement that you supplied, that Columbine and Provenant operate separate offices, under different names, from shared clinic space. The agreement provides that both parties shall develop and use a common patient intake documentation and medical record file system. Records are maintained in common and are accessible to both parties, but remain the property of the center providing medical services to the patient. The parties have agreed to cooperate in the development of mutual procedures in order to facilitate the effective and efficient operation of the medical clinic. Columbine provides administrative services, including grounds maintenance, public relations, and strategic development services, directed to the success of the joint operation.

Based on the information you have supplied, and that is summarized above, it appears that Columbine and Provenant have entered into an agreement to coordinate the operation of, and share some of the costs associated with, what are substantially separate operations undertaken from shared premises. The parties do not appear to be operating a single facility on a shared basis.(6) However, the proposed agreement does not appear to restrict competition significantly, and any incidental restriction of competition between Columbine and Provenant flowing from the proposed "patient sorting" provision is reasonably ancillary to the joint undertaking.

The proposed agreement does not constitute an inherently anticompetitive market allocation agreement. Rather, what you have termed the "patient sorting" provision appears to be a reasonable mechanism designed to govern intake of patients who appear when both facilities are open, and who do not express a preference for either one; and to govern referral for follow-up care of patients seen when only one facility is in operation. As such, the provision is ancillary to the legitimate goal of the parties of assuring that reasonably comprehensive outpatient services are available to patients during all normal business hours, without each party having to offer full-time coverage from its clinic. The provision would not override a particular patient's preference for obtaining services from one or the other party, and there are no provisions in the agreement governing the prices to be charged by Columbine or Provenant. Given the narrow scope of the provision, the lack of any restriction on the ability of either party to offer services at other locations, and the availability of services from a number of other providers in the service area, the provision does not appear to limit competition in the market in any significant way. Accordingly, the provision would not appear to violate the federal 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 effects, 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) Columbine also operates a medical clinic in Nederland, Boulder County, which is not subject to the agreement you have asked about.

(2) The proposed agreement states that Columbine will be open on weekdays from 8:00 a.m. to noon and from 1:00 until 6:00 p.m., with extended hours until 8:00 p.m. on Thursdays. Provenant's Occupational Medicine/Urgent Care clinic is open noon to 8:00 p.m. on Wednesday, Friday, Saturday, and Sunday, and its physical therapy office is open 8:00 a.m. to 5:00 p.m. on Tuesday and Thursday, and 8:00 a.m. to 4:00 p.m. on Fridays.

(3) Provenant has obtained from a private limited partnership a three-year lease on the site for a rent of $1.00 per year. The joint operating agreement recites that there is a shortage of occupational, medical and emergency care in Gilpin and Clear Creek Counties, and that the lease was obtained to "support local health care needs."

(4) Under the joint operating agreement, Provenant is responsible for 62% of operating costs and Columbine for 38% of costs.

(5) The full text of the proposed provision is:

A. During those hours when Columbine is the sole provider on site, Columbine will be responsible for family medicine, urgent care and occupational medicine patients, at their discretion. B. Columbine will refer all occupational medicine patients to Provenant for case management and follow-up if required and if the employer has not designated another provider. C. During those hours when Provenant is the sole provider on site, Provenant will be responsible for all urgent care, occupational medicine patients, and family medicine patients (who require treatment prior to when Columbine will be open), at their discretion. D. Provenant will refer non-work related and family medicine patients to Columbine or to the patient's designated family physician for follow-up and on-going care. Columbine will provide time in their schedule for those patients. E. During hours of overlapping operation, Provenant will see all occupational medicine patients, all ambulance patients and alternating urgent care patients. Patients preference will be respected. Both parties agree to be flexible during times of excessive patient demand in order to expedite patient care.

(6) For this reason, and because Columbine is not a hospital and the joint venture does not involve the joint operation of a specialized or other expensive clinical service, the joint operating agreement does not fall within the Commission's Statement of Enforcement Policy on Hospital Joint Ventures Involving Specialized Clinical or Other Expensive Health Care Services. See Statement Three, United States Department of Justice and Federal Trade Commission, Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust (September 27, 1994), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,150 (1994). Nonetheless, the principles discussed in that statement relating to the rule of reason analysis of hospital joint ventures also are applicable to the joint venture between Columbine and Provenant. That analysis involves a determination whether the joint venture may reduce competition substantially, and if it might, whether it is likely to produce competitive efficiencies that outweigh its anticompetitive potential.