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.
