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HEALTHCARE
LAW |
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July 2003
Messengers Who Do More Than Deliver Messages
Because
independent physicians are viewed under the law as
competitors, their joint efforts normally would be
considered to be illegal price-fixing
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Steven M. Goldstein
Many physicians are members of
specialty networks or independent practice associations
(referred to as "IPAs"). These groups are formed by physicians
with independent practices who wish to come together in order to
jointly contract with insurance companies or other third party
payors. Because independent physicians are viewed under the law
as competitors, their joint efforts normally would be considered
to be illegal price-fixing.
The Federal Trade Commission and
the Department of Justice--the agencies that enforce the federal
antitrust laws, recognized this problem and issued safety zones
that permit IPAs to function so long as they are structured in a
certain way. If a network falls outside of the safety zones, it
does not automatically violate the antitrust laws; on the other
hand, if a network fits within a safety zone, it is protected
from prosecution.
These safety zones require IPAs
to, first, have as members no more than 30% of the physicians in
the relevant market (both geographically and by specialty – for
example, a network of cardiologists should have as members no
more than 30% of the cardiologists in the metropolitan area) if
the network is non-exclusive, and 20% if it is exclusive; and,
second, operate with clinical or financial integration.
Clinical integration means to
share clinical functions, such as treatment protocols. Because
it requires significant joint effort, networks rarely are
clinically integrated to an extent necessary to qualify for this
protection. Financial integration means some sharing of
financial risk among the members, either through the use of
capitated contracts or substantial financial withholds from
fee-for-service contracts. This type of network is more common
in Arizona, although capitated contracts have become less common
since physician networks were first formed.
If a network fails to have
sufficient clinical or financial integration, it can still
operate, but its members cannot share price information among
themselves. The FTC/DOJ safety zones authorize the use of a
"messenger model" to implement this type of arrangement. In it,
a third party acts as a messenger for the network, receiving
offers from third party payors and transmitting them to the
members for their own acceptance or rejection. The messenger is
not permitted to engage in conduct that is prohibited for the
network—if the members of the group cannot share price
information among themselves and negotiate contracts together,
then the messenger cannot negotiate on their behalf. The
messenger must truly limit his or her role to a courier of
offers between the group’s members and the payors.
All of this represents the state
of the law as it has been understood for some time. In May,
2002, the FTC hammered the point home with suits against two
networks in the Denver area. In both cases, the networks (each
with over 40 primary care physicians as members) believed that
they were operating under an appropriate "messenger model".
However, both networks engaged a consultant who demanded certain
fees from the insurance companies, negotiated those fees
further, refused to submit offers to the members unless the
minimum demands were met, and would contract with a payor if a
majority of the members accepted an offer that was submitted to
the members. In addition, in each case, the members would not
contract individually with payors who refused to deal with the
network, and, in one case, even terminated existing individual
contracts with a payor who so refused.
These cases represent heightened
scrutiny by the FTC of physician networks, and it is possible
that many physician networks may be crossing the line in how
they operate their own "messenger models". It may be tempting
for physicians to flex their muscles through the use of these
networks, and it certainly can be an appropriate tool for
leveling the playing field with insurance companies and other
payors. However, even appropriate tools can become dangerous
weapons if used improperly. Physician networks should be careful
not to let their messengers become more than just messengers.
These materials
are designed to provide general information prepared by
professionals in regard to the subject matter covered. It is
provided with the understanding that the author is not engaged
in rendering legal, accounting, or other professional service.
Although prepared by professionals, these materials should not
be utilized as a substitute for professional service in specific
situations. If legal advice or other expert assistance is
required, the service of a professional should be sought.
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