Advisory Opinion to Smith (10-18-96)

October 18, 1996

Ralph T. Smith, Jr. 
Business Health Companies, Inc. 
123 North Post Oak Lane 
Suite 400 
Houston, Texas 77024

Dear Mr. Smith:

This letter responds to your request on behalf of Business Health Companies, Inc. ("BHC") for a staff advisory opinion concerning the legality under the antitrust laws of a survey of hospital prices that BHC intends to undertake. Based on the facts presented in your request, Commission staff would not recommend a challenge to the survey if it is implemented in the manner proposed. This opinion is based on our understanding of the facts as explained in your letters and in telephone conversations with the staff. We have not conducted an independent investigation, and our assessment could change if the facts or our understanding of the facts change significantly.

As I understand it from your letters, BHC has been engaged by the Central Texas Healthcare Coalition, a group of employers located in Waco, Texas, to collect and analyze certain data relating to hospital services in Waco. The Coalition is considering developing a group purchasing organization that will act on behalf of the employers in dealings with the hospitals.

The employers selected the two major hospitals in Waco to participate in a survey designed to help the Coalition evaluate the cost and quality of hospital services in the Waco area.(1) The project involves analysis of the hospitals' average charges by DRG; utilization statistics, such as average length of stay; average charges and utilization vs. expected norms; and normative statistics for outcomes by type of case.(2) The analysis will be made available to the employers and to the participating hospitals.

Each of the hospitals initially signed a letter of intent to participate in the project, but one subsequently raised concerns about whether its participation might violate the antitrust laws. In order to address this concern, you have requested an opinion on whether the proposed data collection and dissemination falls within the safety zone for exchanges of price and cost information among providers contained in Statement 6 of the Department of Justice/Federal Trade Commission Statements of Antitrust Enforcement Policy in Health Care, issued in August, 1996.

As currently formulated, the first phase of the project would involve collection and analysis of billing data from the two hospitals in Waco. BHC proposes to add to the information gathered from the two Waco hospitals similar information from three other Texas hospitals of similar size and patient mix. The reported information would be blended so that no hospital would be able to identify the data submitted by any other hospital. The information would cover a 12-month period and be at least 3 months old. No hospital would account for more than 25% of the data on a weighted basis of any statistical comparison. The reports to be generated might show, for example, the average charges per case or lengths of stay, by DRG. The information will be used by the employers in constructing a fee schedule to be proposed by the group purchasing organization to each of the hospitals on an individual basis.

In phase two of the project, the Waco hospitals would be compared on a quality performance basis, by using the hospitals' data described above in comparison to benchmarks developed by HCIA Inc. HCIA is a healthcare information company that uses its data bases and proprietary statistical methods to compare the performance of particular hospitals with selected comparison facilities. Each participating hospital would receive a report comparing its performance to national, state-wide or peer group norms. No participating hospital would be given information concerning any other individual hospital's performance.


Under the DOJ/FTC Statement of Enforcement Policy on Provider Participation in Exchanges of Price and Cost information, the agencies will not, absent extraordinary circumstances, challenge provider participation in written surveys of prices for health care services if the following conditions are satisfied:

(1) the survey is managed by a third-party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association);

(2) the information provided by survey participants is based on data more than 3 months old; and

(3) there are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data represents more than 25 percent on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider.(3)

The survey that BHC proposes to undertake appears to fall within the safety zone. BHC will manage collection, analysis and dissemination of the data, and will not disclose to any hospital unaggregated data from any other hospital. The information to be collected will be no less that 3 months old, and will be disclosed only in aggregated form with data from 5 hospitals. No hospital's data will comprise more than 25% on a weighted basis of any reported statistic. Consequently, the participation of the Waco hospitals in the data collection effort would not appear to raise concerns under the antitrust laws.


For the reasons discussed above, Commission staff have no current intention to recommend a challenge to BHC conducting, and the hospitals' participating in, a price survey as described above. 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,

Robert F. Leibenluft

1. A third hospital, owned by an HMO in Temple, Texas, declined to participate in the project.

2. Although at one time it was anticipated that the report might include in-patient physician charge data, this information is not expected to be available, and this opinion does not consider any issues relating to the collection of physician charge information.

3. Department of Justice/Federal Trade Commission Statements of Antitrust Enforcement Policy in Health Care at 50 (1996).