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The Feds ease antitrust rules--cautiously


A Denver IPA gets a go-ahead from the government to contract on behalf of members. Is this good news for physicians?


The Feds ease antitrust rules—cautiously

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Choose article section... Integration: Better care and lower costs? Caution: The Feds will be watching No magic bullet for battling managed care

A Denver IPA gets a go-ahead from the government to contract on behalf of members. Is this good news for physicians?

By Wayne J. Guglielmo
Senior Editor

One of the Federal Trade Commission's jobs is to worry about anticompetitive behavior. So it's been no friend of physician collective bargaining.

That's why health plan executives and physicians were surprised to learn that, in the middle of February, the FTC seemingly reversed course, albeit cautiously.

The reversal came in the form of a staff opinion letter issued in response to a request from a 432-member IPA in Denver. MedSouth wanted to develop a clinically integrated physician network to improve patient care and lower costs. Key to the plan: The ability to negotiate fee-for-service contracts with local health plans on behalf of members.

FTC staff agreed not to challenge the MedSouth program on antitrust grounds. Certainly, the agency will watch out for anticompetitive behavior. But for now at least, it's willing to let doctors experiment.

That's a new direction, so the decision has stirred reactions from other doctors and the HMO industry. What should you make of it?

Integration: Better care and lower costs?

MedSouth's decision to integrate clinically is linked to its past financial difficulties with health plans.

Like other Denver physicians in the late 1990s, MedSouth members initially formed their IPA to establish risk-sharing contracts with local health plans. But for MedSouth, those contracts proved financially draining, so the IPA terminated them at renewal time. Some MedSouth members continued to contract individually with local plans at prevailing market rates. But others envisioned a different arrangement—practicing on a partially integrated basis with no risk sharing.

MedSouth officials put together a plan with three key mandates. First, deliver primary and specialty services in a coordinated fashion. Second, share clinical information, practice guidelines, and performance benchmarks. And third, develop a physician network to negotiate collectively with third-party payers. To help it integrate clinically, MedSouth struck a deal with a software developer interested in beta testing a new Web-based data system. If MedSouth would serve as guinea pig, the company would foot the bill for most of the development costs.

But MedSouth's Washington, DC-based attorney, Jeff Miles, was troubled by the government's relative silence on the subject of clinical integration as the basis for joint contracting. The last thing he wanted to do was run afoul of the FTC, which had already investigated other Denver physician networks for alleged antitrust violations.

Deciding to err on the side of caution, Miles and MedSouth officials solicited FTC staff input. On June 1, 200l, Miles sent out an advisory request.

Caution: The Feds will be watching

FTC staff responded in a letter addressed to Miles on Feb. 19 of this year.

As expected, the agency concluded that MedSouth's proposal to create a clinically integrated network could indeed enhance quality and reduce costs. Given those potential benefits, the FTC said, it would not automatically reject the second part of MedSouth's proposal—joint negotiation of contracts—as per se illegal price-fixing.

But for the Denver doctors to get the green light, the FTC still had to conclude that MedSouth couldn't achieve its goals of better quality and lower costs without joint negotiation of contracts. Stated the advisory: ". . . the doctors need to be able to rely on the participation of other members of the . . . network and its activities on a continuing basis. This does not appear to be possible if contracting for the sale of services is done individually."

"The whole idea behind MedSouth was to sell a single product, including both the physician services and the [clinically integrated] program itself," says Miles. At the same time, FTC staff were careful to issue a pair of cautions. First, MedSouth must still make individual members available to contract with health plans that elect not to deal with the network. And second, power in the local market must not shift too heavily in favor of doctors. "We will . . . closely monitor MedSouth's activities," the advisory noted, "and will recommend that the [Federal Trade] Commission take appropriate action if the proposed conduct appears to result in actual anticompetitive effects."

No magic bullet for battling managed care

Given these cautions, it's premature to jump to any conclusions about the MedSouth decision.

Attorney Jeff Miles knows that better than anyone. "A lot of people around the country have the impression that this is a way for physicians to get around the antitrust laws and leverage their bargaining power. Some see it as a panacea for all the problems they have with managed care. That's simply not the case. The [FTC] letter is very clear—if we obtain and try to exercise market power, we're going to have a problem."

Los Angeles attorney and former FTC Regional Director Robert J. Enders agrees, calling the agency's letter to MedSouth less of a green light than a "flashing yellow light— a signal to proceed slowly."

The AMA has also reacted cautiously—albeit for different reasons. While it's pleased for MedSouth doctors and their patients, it warns that a clinically integrated network is simply too complex and too expensive for widespread adoption. "It's not the magic bullet for most physician practices," says general and vascular surgeon Donald J. Palmisano, AMA secretary-treasurer.

As an alternative, the AMA is supporting the Health Care Antitrust Improvements Act of 2002, which would apply the "rule of reason" to joint physician negotiations with health plans. (The standard takes into consideration the circumstances under which joint negotiation takes place.)

The legislation is strongly opposed by the managed care industry—which has also raised a warning about MedSouth. "We believe in the principle of integration, but that doesn't mean that anything goes," says Susan Pisano, vice president of communications at the American Association of Health Plans. The association is especially concerned that joint physician negotiation will stifle competition and lead to higher costs for consumers.

If that happens, of course, the FTC will be watching. Meanwhile, the MedSouth model may be too costly for some and not enough of a magic bullet for others. But if it actually results in better delivery of medical care in Denver, it just might get picked up elsewhere.


Wayne Guglielmo. The Feds ease antitrust rules--cautiously. Medical Economics 2002;12:55.

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