DOJ/Antitrust

Statements of
Antitrust Enforcement Policy
in Health Care

Issued by the
U.S. Department of Justice
and the
Federal Trade Commission

August 1996

                     TABLE OF CONTENTS


Introduction .......................................................1


Statement 1 -
              Mergers Among Hospitals...............................8

Statement 2 - Hospital Joint Ventures Involving
              High Technology Or Other Expensive
              Health Care Equipment................................12


Statement 3 - Hospital Joint Ventures Involving
              Specialized Clinical Or Other Expensive
              Health Care Services.................................31


Statement 4 - Providers' Collective Provision Of
              Non-Fee-Related Information To Purchasers
              Of Health Care Services..............................40


Statement 5 - Providers' Collective Provision Of
              Fee-Related Information To Purchasers Of
              Health Care Services.................................43


Statement 6 - Provider Participation In Exchanges Of
              Price And Cost Information...........................49


Statement 7 - Joint Purchasing Arrangements Among Health
              Care Providers.......................................53


Statement 8 - Physician Network Joint Ventures.....................61


Statement 9 - Multiprovider Networks..............................106

DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION STATEMENTS OF ANTITRUST ENFORCEMENT POLICY IN HEALTH CARE INTRODUCTION In September 1993, the Department of Justice and the Federal Trade Commission (the "Agencies") issued six statements of their antitrust enforcement policies regarding mergers and various joint activities in the health care area. The six policy statements addressed: (1) hospital mergers; (2) hospital jointventures involving high-technology or other expensive medical equipment; (3) physicians' provision of information to purchasers of health care services; (4) hospital participation in exchanges of price and cost information; (5) health care providers' joint purchasing arrangements; and (6) physician network joint ventures. The Agencies also committed to issuing expedited Department of Justice business reviews and Federal Trade Commission advisory opinions in response to requests for antitrust guidance on specific proposed conduct involving the health care industry. The 1993 policy statements and expedited specific Agency guidance were designed to advise the health care community in a time of tremendous change, and to address, as completely as possible, the problem of uncertainty concerning the Agencies' enforcement policy that some had said might deter mergers, joint ventures, or other activities that could lower health care costs. Sound antitrust enforcement, of course, continued to protect consumers against anticompetitive activities. When the Agencies issued the 1993 health care antitrust enforcement policy statements, they recognized that additional guidance might be desirable in the areas covered by those statements as well as in other health care areas, and committed to issuing revised and additional policy statements as warranted. In light of the comments the Agencies received on the 1993 statements and the Agencies' own experience, the Agencies revised and expanded the health care antitrust enforcement policy statements in September 1994. The 1994 statements, which superseded the 1993 statements, added new statements addressing hospital joint ventures involving specialized clinical or other expensive health care services, providers' collective provision of fee-related information to purchasers of health care services, and analytical principles relating to a broad range of health care provider networks (termed "multiprovider networks"), and expanded the antitrust "safety zones" for several other statements. Since issuance of the 1994 statements, health care markets have continued to evolve in response to consumer demand and competition in the marketplace. New arrangements and variations on existing arrangements involving joint activity by health care providers continue to emerge to meet consumers', purchasers', and payers' desire for more efficient delivery of high quality health care services. During this period, the Agencies have gained additional experience with arrangements involving joint provider activity. As a result of these developments, the Agencies have decided to amplify the enforcement policy statement on physician network joint ventures and the more general statement on multiprovider networks. In these revised statements, the Agencies continue to analyze all types of health care provider networks under general antitrust principles. These principles are sufficiently flexible to take into account the particular characteristics of health care markets and the rapid changes that are occurring in those markets. The Agencies emphasize that it is not their intent to treat such networks either more strictly or more leniently than joint ventures in other industries, or to favor any particular procompetitive organization or structure of health care delivery over other forms that consumers may desire. Rather, their goal is to ensure a competitive marketplace in which consumers will have the benefit of high quality, cost-effective health care and a wide range of choices, including new provider-controlled networks that expand consumer choice and increase competition. The revisions to the statements on physician network joint ventures and multiprovider networks are summarized below. In addition to these revisions, various changes have been made to the language of both statements to improve their clarity. No revisions have been made to any of the other statements. Physician Network Joint Ventures The revised statement on physician network joint ventures provides an expanded discussion of the antitrust principles that apply to such ventures. The revisions focus on the analysis of networks that fall outside the safety zones contained in the existing statement, particularly those networks that do not involve the sharing of substantial financial risk by their physician participants. The revised statement explains that where physicians' integration through the network is likely to produce significant efficiencies, any agreements on price reasonably necessary to accomplish the venture's procompetitive benefits will be analyzed under the rule of reason. The revised statement adds three hypothetical examples to further illustrate the application of these principles: (1) a physician network joint venture that does not involve the sharing of substantial financial risk, but receives rule of reason treatment due to the extensive integration among its physician participants; (2) a network that involves both risk-sharing and non-risk-sharing activities, and receives rule of reason treatment; and (3) a network that involves little or no integration among its physician participants, and is per se illegal. The safety zones for physician network joint ventures remain unchanged, but the revised statement identifies additional types of financial risk-sharing arrangements that can qualify a network for the safety zones. It also further emphasizes two points previously made in the 1994 statements. First, the enumeration in the statements of particular examples of substantial financial risk sharing does not foreclose consideration of other arrangements through which physicians may share substantial financial risk. Second, a physician network that falls outside the safety zones is not necessarily anticompetitive. Multiprovider Networks In 1994, the Agencies issued a new statement on multiprovider health care networks that described the general antitrust analysis of such networks. The revised statement on multiprovider networks emphasizes that it is intended to articulate general principles relating to a wide range of health care provider networks. Many of the revisions to this statement reflect changes made to the revised statement on physician network joint ventures. In addition, four hypothetical examples involving PHOs ("physician-hospital organizations"), including one involving "messenger model" arrangements, have been added. Safety Zones and Hypothetical Examples
Most of the nine statements give health care providers guidance in the form of antitrust safety zones, which describe conduct that the Agencies will not challenge under the antitrust laws, absent extraordinary circumstances. The Agencies are aware that some parties have interpreted the safety zones as defining the limits of joint conduct that is permissible under the antitrust laws. This view is incorrect. The inclusion of certain conduct within the antitrust safety zones does not imply that conduct falling outside the safety zones is likely to be challenged by the Agencies. Antitrust analysis is inherently fact-intensive. The safety zones are designed to require consideration of only a few factors that are relatively easy to apply, and to provide the Agencies with a high degree of confidence that arrangements falling within them are unlikely to raise substantial competitive concerns. Thus, the safety zones encompass only a subset of provider arrangements that the Agencies are unlikely to challenge under the antitrust laws. The statements outline the analysis the Agencies will use to review conduct that falls outside the safety zones. Likewise, the statements' hypothetical examples concluding that the Agencies would not challenge the particular arrangement do not mean that conduct varying from the examples is likely to be challenged by the Agencies. The hypothetical examples are designed to illustrate how the statements' general principles apply to specific situations. Interested parties should examine the business review letters issued by the Department of Justice and the advisory opinions issued by the Federal Trade Commission and its staff for additional guidance on the application and interpretation of these statements. Copies of those letters and opinions and summaries of the letters and opinions are available from the Agencies at the mailing and Internet addresses listed at the end of the statements. The statements also set forth the Department of Justice's business review procedure and the Federal Trade Commission's advisory opinion procedure under which the health care community can obtain the Agencies' antitrust enforcement intentions regarding specific proposed conduct on an expedited basis. The statements continue the commitment of the Agencies to respond to requests for business reviews or advisory opinions from the health care community no later than 90 days after all necessary information is received regarding any matter addressed in the statements, except requests relating to hospital mergers outside the antitrust safety zone and multiprovider networks. The Agencies also will respond to business review or advisory opinion requests regarding multiprovider networks or other non-merger health care matters within 120 days after all necessary information is received. The Agencies intend to work closely with persons making requests to clarify what information is necessary and to provide guidance throughout the process. The Agencies continue this commitment to expedited review in an effort to reduce antitrust uncertainty for the health care industry in what the Agencies recognize is a time of fundamental change. The Agencies recognize the importance of antitrust guidance in evolving health care contexts. Consequently, the Agencies continue their commitment to issue additional guidance as warranted. . 1. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON MERGERS AMONG HOSPITALS Introduction Most hospital mergers and acquisitions ("mergers") do not present competitive concerns. While careful analysis may be necessary to determine the likely competitive effect of a particular hospital merger, the competitive effect of many hospital mergers is relatively easy to assess. This statement sets forth an antitrust safety zone for certain mergers in light of the Agencies' extensive experience analyzing hospital mergers. Mergers that fall within the antitrust safety zone will not be challenged by the Agencies under the antitrust laws, absent extraordinary circumstances.¹ This policy statement also briefly describes the Agencies' antitrust analysis of hospital mergers that fall outside the antitrust safety zone. A. Antitrust Safety Zone: Mergers Of Hospitals That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies The Agencies will not challenge any merger between two general acute-care hospitals where one of the hospitals (1) has an average of fewer than 100 licensed beds over the three most recent years, and (2) has an average daily inpatient census of fewer than 40 patients over the three most recent years, absent extraordinary circumstances. This antitrust safety zone will not apply if that hospital is less than 5 years old. The Agencies recognize that in some cases a general acute care hospital with fewer than 100 licensed beds and an average daily inpatient census of fewer than 40 patients will be the only hospital in a relevant market. As such, the hospital does not compete in any significant way with other hospitals. Accordingly, mergers involving such hospitals are unlikely to reduce competition substantially. The Agencies also recognize that many general acute care hospitals, especially rural hospitals, with fewer than 100 licensed beds and an average daily inpatient census of fewer than 40 patients are unlikely to achieve the efficiencies that larger hospitals enjoy. Some of those cost-saving efficiencies may be realized, however, through a merger with another hospital. B. The Agencies' Analysis Of Hospital Mergers
That Fall Outside The Antitrust Safety Zone Hospital mergers that fall outside the antitrust safety zone are not necessarily anticompetitive, and may be procompetitive. The Agencies' analysis of hospital mergers follows the five steps set forth in the Department of Justice/ Federal Trade Commission 1992 Horizontal Merger Guidelines. Applying the analytical framework of the Merger Guidelines to particular facts of specific hospital mergers, the Agencies often have concluded that an investigated hospital merger will not result in a substantial lessening of competition in situations where market concentration might otherwise raise an inference of anticompetitive effects. Such situations include transactions where the Agencies found that: (1) the merger would not increase the likelihood of the exercise of market power either because of the existence post-merger of strong competitors or because the merging hospitals were sufficiently differentiated; (2) the merger would allow the hospitals to realize significant cost savings that could not otherwise be realized; or (3) the merger would eliminate a hospital that likely would fail with its assets exiting the market. Antitrust challenges to hospital mergers are relatively rare. Of the hundreds of hospital mergers in the United States since 1987, the Agencies have challenged only a handful, and in several cases sought relief only as to part of the transaction. Most reviews of hospital mergers conducted by the Agencies are concluded within one month. *** If hospitals are considering mergers that appear to fall within the antitrust safety zone and believe they need additional certainty regarding the legality of their conduct under the antitrust laws, they can take advantage of the Department's business review procedure (28 C.F.R. § 50.6 (1992)) or the Federal Trade Commission's advisory opinion procedure (16 C.F.R. §§ 1.1-1.4 (1993)). The Agencies will respond to business review or advisory opinion requests on behalf of hospitals considering mergers that appear to fall within the antitrust safety zone within 90 days after all necessary information is submitted.. 2. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON HOSPITAL JOINT VENTURES INVOLVING HEALTH CARE EQUIPMENT Introduction Most hospital joint ventures to purchase or otherwise share the ownership cost of, operate, and market high-technology or other expensive health care equipment and related services do not create antitrust problems. In most cases, these collaborative activities create procompetitive efficiencies that benefit consumers. These efficiencies include the provision of services at a lower cost or the provision of services that would not have been provided absent the joint venture. Sound antitrust enforcement policy distinguishes those joint ventures that on balance benefit the public from those that may increase prices without providing a countervailing benefit, and seeks to prevent only those that are harmful to consumers. The Agencies have never challenged a joint venture among hospitals to purchase or otherwise share the ownership cost of, operate and market high-technology or other expensive health care equipment and related services. This statement of enforcement policy sets forth an antitrust safety zone that describes hospital high-technology or other expensive health care equipment joint ventures that will not be challenged, absent extraordinary circumstances, by the Agencies under the antitrust laws. It then describes the Agencies' antitrust analysis of hospital high-technology or other expensive health care equipment joint ventures that fall outside the antitrust safety zone. Finally, this statement includes examples of its application to hospital high-technology or other expensive health care equipment joint ventures. A. Antitrust Safety Zone: Hospital High-Technology Joint Ventures That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies The Agencies will not challenge under the antitrust laws any joint venture among hospitals to purchase or otherwise share the ownership cost of, operate, and market the related services of, high-technology or other expensive health care equipment if the joint venture includes only the number of hospitals whose participation is needed to support the equipment, absent extraordinary circumstances.² This applies to joint ventures involving purchases of new equipment as well as to joint ventures involving existing equipment.³ A joint venture that includes additional hospitals also will not be challenged if the or through the formation of a competing joint venture, absent extraordinary circumstances. For example, if two hospitals are each unlikely to recover the cost of individually purchasing, operating, and marketing the services of a magnetic resonance imager (MRI) over its useful life, their joint venture with respect to the MRI would not be challenged by the Agencies. On the other hand, if the same two hospitals entered into a joint venture with a third hospital that independently could have purchased, operated, and marketed an MRI in a financially viable manner, the joint venture would not be in this antitrust safety zone. If, however, none of the three hospitals could have supported an MRI by itself, the Agencies would not challenge the joint venture.⁴ Information necessary to determine whether the costs of a piece of high-technology health care equipment could be recovered over its useful life is normally available to any hospital or group of hospitals considering such a purchase. This information may include the cost of the equipment, its expected useful life, the minimum number of procedures that must be done to meet a machine's financial breakeven point, the expected number of procedures the equipment will be used for given the population served by the joint venture and the expected price to be charged for the use of the equipment. Expected prices and costs should be confirmed by objective evidence, such as experiences in similar markets for similar technologies. B. The Agencies' Analysis Of Hospital High- Technology Or Other Expensive Health Care Equipment Joint Ventures That Fall Outside The Antitrust Safety Zone The Agencies recognize that joint ventures that fall outside the antitrust safety zone do not necessarily raise significant antitrust concerns. The Agencies will apply a rule of reason analysis in their antitrust review of such joint ventures.⁵ The objective of this analysis is to determine whether the joint venture may reduce competition substantially, and, if it might, whether it is likely to produce procompetitive efficiencies that outweigh its anticompetitive potential. This analysis is flexible and takes into account the nature and effect of the joint venture, the characteristics of the venture and of the hospital industry generally, and the reasons for, and purposes of, the venture. It also allows for consideration of efficiencies that will result from the venture. The steps involved in a rule of reason analysis are set forth below.⁶ Step one: Define the relevant market. The rule of reason analysis first identifies what is produced through the joint venture. The relevant product and geographic markets are then properly defined. This process seeks to identify any other provider that could offer what patients or physicians generally would consider a good substitute for that provided by the joint venture. Thus, if a joint venture were to purchase and jointly operate and market the related services of an MRI, the relevant market would include all other MRIs in the area that are reasonable alternatives for the same patients, but would not include providers with only traditional X-ray equipment. Step two: Evaluate the competitive effects of the venture. This step begins with an analysis of the structure of the relevant market. If many providers would compete with the joint venture, competitive harm is unlikely and the analysis would continue with step four described below. If the structural analysis of the relevant market showed that the joint venture would eliminate an existing or potentially viable competing provider and that there were few competing providers of that service, or that cooperation in the joint venture market may spill over into a market in which the parties to the joint venture are competitors, it then would be necessary to assess the extent of the potential anticompetitive effects of the joint venture. In addition to the number and size of competing providers, factors that could restrain the ability of the joint venture to raise prices either unilaterally or through collusive agreements with other providers would include: (1) characteristics of the market that make anticompetitive coordination unlikely; (2) the likelihood that other providers would enter the market; and (3) the effects of government regulation. The extent to which the joint venture restricts competition among the hospitals participating in the venture is evaluated during this step. In some cases, a joint venture to purchase or otherwise share the cost of high-technology equipment may not substantially eliminate competition among the hospitals in providing the related service made possible by the equipment. For example, two hospitals might purchase a mobile MRI jointly, but operate and market MRI services separately. In such instances, the potential impact on competition of the joint venture would be substantially reduced.⁷ Step three: Evaluate the impact of procompetitive efficiencies. This step requires an examination of the joint venture's potential to create procompetitive efficiencies, and the balancing of these efficiencies against any potential anticompetitive effects. The greater the venture's likely anticompetitive effects, the greater must be the venture's likely efficiencies. In certain circumstances, efficiencies can be substantial because of the need to spread the cost of expensive equipment over a large number of patients and the potential for improvements in quality to occur as providers gain experience and skill from performing a larger number of procedures. Step four: Evaluate collateral agreements. This step examines whether the joint venture includes collateral agreements or conditions that unreasonably restrict competition and are unlikely to contribute significantly to the legitimate purposes of the joint venture. The Agencies will examine whether the collateral agreements are reasonably necessary to achieve the efficiencies sought by the joint venture. For example, if the participants in a joint venture formed to purchase a mobile lithotripter also agreed on the daily room rate to be charged lithotripsy patients who required overnight hospitalization, this collateral agreement as to room rates would not be necessary to achieve the benefits of the lithotripter joint venture. Although the joint venture itself would be legal, the collateral agreement on hospital room rates would not be legal and would be subject to challenge.

C. Examples Of Hospital High-Technology Joint Ventures

The following are examples of hospital joint ventures that are unlikely to raise significant antitrust concerns. Each is intended to demonstrate an aspect of the analysis that would be used to evaluate the venture. 1. New Equipment That Can Be Offered Only By A Joint Venture All the hospitals in a relevant market agree that they jointly will purchase, operate and market a helicopter to provide emergency transportation for patients. The community's need for the helicopter is not great enough to justify having more than one helicopter operating in the area and studies of similarly sized communities indicate that a second helicopter service could not be supported. This joint venture falls within the antitrust safety zone. It would make available a service that would not otherwise be available, and for which duplication would be inefficient. 2. Joint Venture To Purchase Expensive Equipment All five hospitals in a relevant market agree to jointly purchase a mobile health care device that provides a service for which consumers have no reasonable alternatives. The hospitals will share equally in the cost of maintaining the equipment, and the equipment will travel from one hospital to another and be available one day each week at each hospital. The hospitals' agreement contains no provisions for joint marketing of, and protects against exchanges of competitively sensitive information regarding, the equipment.⁸ There are also no limitations on the prices that each hospital will charge for use of the equipment, on the number of procedures that each hospital can perform, or on each hospital's ability to purchase the equipment on its own. Although any combination of two of the hospitals could afford to purchase the equipment and recover their costs within the equipment's useful life, patient volume from all five hospitals is required to maximize the efficient use of the equipment and lead to significant cost savings. In addition, patient demand would be satisfied by provision of the equipment one day each week at each hospital. The joint venture would result in higher use of the equipment, thus lowering the cost per patient and potentially improving quality. This joint venture does not fall within the antitrust safety zone because smaller groups of hospitals could afford to purchase and operate the equipment and recover their costs. Therefore, the joint venture would be analyzed under the rule of reason. The first step is to define the relevant market. In this example, the relevant market consists of the services provided by the equipment, and the five hospitals all potentially compete against each other for patients requiring this service. The second step in the analysis is to determine the competitive effects of the joint venture. Because the joint venture is likely to reduce the number of these health care devices in the market, there is a potential restraint on competition. The restraint would not be substantial, however, for several reasons. First, the joint venture is limited to the purchase of the equipment and would not eliminate competition among the hospitals in the provision of the services. The hospitals will market the services independently, and will not exchange competitively sensitive information. In addition, the venture does not preclude a hospital from purchasing another unit should the demand for these services increase. Because the joint venture raises some competitive concerns, however, it is necessary to examine the potential efficiencies associated with the venture. As noted above, by sharing the equipment among the five hospitals significant cost savings can be achieved. The joint venture would produce substantial efficiencies while providing access to high quality care. Thus, this joint venture would on balance benefit consumers since it would not lessen competition substantially, and it would allow the hospitals to serve the community's need in a more efficient manner. Finally, in this example the joint venture does not involve any collateral agreements that raise competitive concerns. On these facts, the joint venture would not be challenged by the Agencies. 3. Joint Venture Of Existing Expensive Equipment Where One Of The Hospitals In The Venture Already Owns The Equipment Metropolis has three hospitals and a population of 300,000. Mercy and University Hospitals each own and operate their own magnetic resonance imaging device ("MRI"). General Hospital does not. Three independent physician clinics also own and operate MRIs. All of the existing MRIs have similar capabilities. The acquisition of an MRI is not subject to review under a certificate of need law in the state in which Metropolis is located. Managed care plans have told General Hospital that, unless it can provide MRI services, it will be a less attractive contracting partner than the other two hospitals in town. The five existing MRIs are slightly underutilized -- that is, the average cost per scan could be reduced if utilization of the machines increased. There is insufficient demand in Metropolis for six fully-utilized MRIs. General has considered purchasing its own MRI so that it can compete on equal terms with Mercy and University Hospitals. However, it has decided based on its analysis of demand for MRI services and the cost of acquiring and operating the equipment that it would be better to share the equipment with another hospital. General proposes forming a joint venture in which it will purchase a 50 percent share in Mercy's MRI, and the two hospitals will work out an arrangement by which each hospital has equal access to the MRI. Each hospital in the joint venture will independently market and set prices for those MRI services, and the joint venture agreement protects against exchanges of competitively sensitive information among the hospitals. There is no restriction on the ability of each hospital to purchase its own equipment. The proposed joint venture does not fall within the antitrust safety zone because General apparently could independently support the purchase and operation of its own MRI. Accordingly, the Agencies would analyze the joint venture under a rule of reason. The first step of the rule of reason analysis is defining the relevant product and geographic markets. Assuming there are no good substitutes for MRI services, the relevant product market in this case is MRI services. Most patients currently receiving MRI services are unwilling to travel outside of Metropolis for those services, so the relevant geographic market is Metropolis. Mercy, University, and the three physician clinics are already offering MRI services in this market. Because General intends to offer MRI services within the next year, even if there is no joint venture, it is viewed as a market participant. The second step is determining the competitive impact of the joint venture. Absent the joint venture, there would have been six independent MRIs in the market. This raises some competitive concerns with the joint venture. The fact that the joint venture will not entail joint price setting or marketing of MRI services to purchasers reduces the venture's potential anticompetitive effect. The competitive analysis would also consider the likelihood of additional entry in the market. If, for example, another physician clinic is likely to purchase an MRI in the event that the price of MRI services were to increase, any anticompetitive effect from the joint venture becomes less likely. Entry may be more likely in Metropolis than other areas because new entrants are not required to obtain certificates of need. The third step of the analysis is assessing the likely efficiencies associated with the joint venture. The magnitude of any likely anticompetitive effects associated with the joint venture is important; the greater the venture's likely anticompetitive effects, the greater must be the venture's likely efficiencies. In this instance, the joint venture will avoid the costly duplication associated with General purchasing an MRI, and will allow Mercy to reduce the average cost of operating its MRI by increasing the number of procedures done. The competition between the Mercy/General venture and the other MRI providers in the market will provide some incentive for the joint venture to operate the MRI in as low-cost a manner as possible. Thus, there are efficiencies associated with the joint venture that could not be achieved in a less restrictive manner. The final step of the analysis is determining whether the joint venture has any collateral agreements or conditions that reduce competition and are not reasonably necessary to achieve the efficiencies sought by the venture. For example, if the joint venture required managed care plans desiring MRI services to contract with both joint venture participants for those services, that condition would be viewed as anticompetitive and unnecessary to achieve the legitimate procompetitive goals of the joint venture. This example does not include any unnecessary collateral restraints. On balance, when weighing the likelihood that the joint venture will significantly reduce competition for these services against its potential to result in efficiencies, the Agencies would view this joint venture favorably under a rule of reason analysis. 4. Joint Venture Of Existing Equipment Where Both Hospitals In The Venture Already Own The Equipment Valley Town has a population of 30,000 and is located in a valley surrounded by mountains. The closest urbanized area is over 75 miles away. There are two hospitals in Valley Town: Valley Medical Center and St. Mary's. Valley Medical Center offers a full range of primary and secondary services. St. Mary's offers primary and some secondary services. Although both hospitals have a CT scanner, Valley Medical Center's scanner is more sophisticated. Because of its greater sophistication, Valley Medical Center's scanner is more expensive to operate, and can conduct fewer scans in a day. A physician clinic in Valley Town operates a third CT scanner that is comparable to St. Mary's scanner and is not fully utilized. Valley Medical Center has found that many of the scans that it conducts do not require the sophisticated features of its scanner. Because scans on its machine take so long, and so many patients require scans, Valley Medical Center also is experi- encing significant scheduling problems. St. Mary's scanner, on the other hand, is underutilized, partially because many individ- uals go to Valley Medical Center because they need the more sophisticated scans that only Valley Medical Center's scanner can provide. Despite the underutilization of St. Mary's scanner, and the higher costs of Valley Medical Center's scanner, neither hospital has any intention of discontinuing its CT services. Valley Medical Center and St. Mary's are proposing a joint venture that would own and operate both hospitals' CT scanners. The two hospitals will then independently market and set the prices they charge for those services, and the joint venture agreement protects against exchanges of competitively sensitive information between the hospitals. There is no restriction on the ability of each hospital to purchase its own equipment. The proposed joint venture does not qualify under the Agencies' safety zone because the participating hospitals can independently support their own equipment. Accordingly, the Agencies would analyze the joint venture under a rule of reason. The first step of the analysis is to determine the relevant product and geographic markets. As long as other diagnostic services such as conventional X-rays or MRI scans are not viewed as a good substitute for CT scans, the relevant product market is CT scans. If patients currently receiving CT scans in Valley Town would be unlikely to switch to providers offering CT scans outside of Valley Town in the event that the price of CT scans in Valley Town increased by a small but significant amount, the relevant geographic market is Valley Town. There are three participants in this relevant market: Valley Medical Center, St. Mary's, and the physician clinic. The second step of the analysis is determining the competitive effect of the joint venture. Because the joint venture does not entail joint pricing or marketing of CT services, the joint venture does not effectively reduce the number of market participants. This reduces the venture's potential anticompetitive effect. In fact, by increasing the scope of the CT services that each hospital can provide, the joint venture may increase competition between Valley Medical Center and St. Mary's since now both hospitals can provide sophisticated scans. Competitive concerns with this joint venture would be further ameliorated if other health care providers were likely to acquire CT scanners in response to a price increase following the formation of the joint venture. The third step is assessing whether the efficiencies associated with the joint venture outweigh any anticompetitive effect associated with the joint venture. This joint venture will allow both hospitals to make either the sophisticated CT scanner or the less sophisticated, but less costly, CT scanner available to patients at those hospitals. Thus, the joint venture should increase quality of care by allowing for better utilization and scheduling of the equipment, while also reducing the cost of providing that care, thereby benefitting the community. The joint venture may also increase quality of care by making more capacity available to Valley Medical Center; while Valley Medical Center faced capacity constraints prior to the joint venture, it can now take advantage of St. Mary's underutilized CT scanner. The joint venture will also improve access by allowing patients requiring routine scans to be moved from the sophisticated scanner at Valley Medical Center to St. Mary's scanner where the scans can be performed more quickly. The last step of the analysis is to determine whether there are any collateral agreements or conditions associated with the joint venture that reduce competition and are not reasonably necessary to achieve the efficiencies sought by the joint venture. Assuming there are no such agreements or conditions, the Agencies would view this joint venture favorably under a rule of reason analysis. As noted in the previous example, excluding price setting and marketing from the scope of the joint venture reduces the probability and magnitude of any anticompetitive effect of the joint venture, and thus reduces the likelihood that the Agencies will find the joint venture to be anticompetitive. If joint price setting and marketing were, however, a part of that joint venture, the Agencies would have to determine whether the cost savings and quality improvements associated with the joint venture offset the loss of competition between the two hospitals. Also, if neither of the hospitals in Valley Town had a CT scanner, and they proposed a similar joint venture for the purchase of two CT scanners, one sophisticated and one less sophisticated, the Agencies would be unlikely to view that joint venture as anticompetitive, even though each hospital could independently support the purchase of its own CT scanner. This conclusion would be based upon a rule of reason analysis that was virtually identical to the one described above. *** Hospitals that are considering high-technology or other expensive equipment joint ventures and are unsure of the legality of their conduct under the antitrust laws can take advantage of the Department's expedited business review procedure for joint ventures and information exchanges announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a business review or advisory opinion request on behalf of hospitals that are considering a high-technology joint venture within 90 days after all necessary information is submitted. The Department's December 1, 1992 announcement contains specific guidance as to the information that should be submitted.. 3. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON HOSPITAL JOINT VENTURES INVOLVING SPECIALIZED CLINICAL OR OTHER EXPENSIVE HEALTH CARE SERVICES Introduction Most hospital joint ventures to provide specialized clinical or other expensive health care services do not create antitrust problems. The Agencies have never challenged an integrated joint venture among hospitals to provide a specialized clinical or other expensive health care service. Many hospitals wish to enter into joint ventures to offer these services because the development of these services involves investments -- such as the recruitment and training of specialized personnel -- that a single hospital may not be able to support. In many cases, these collaborative activities could create procompetitive efficiencies that benefit consumers, including the provision of services at a lower cost or the provision of a service that would not have been provided absent the joint venture. Sound antitrust enforcement policy distinguishes those joint ventures that on balance benefit the public from those that may increase prices without providing a countervailing benefit, and seeks to prevent only those that are harmful to consumers. This statement of enforcement policy sets forth the Agencies' antitrust analysis of joint ventures between hospitals to provide specialized clinical or other expensive health care services and includes an example of its application to such ventures. It doesP> not include a safety zone for such ventures since the Agencies believe that they must acquire more expertise in evaluating the cost of, demand for, and potential benefits from such joint ventures before they can articulate a meaningful safety zone. The absence of a safety zone for such collaborative activities does not imply that they create any greater antitrust risk than other types of collaborative activities. A. The Agencies' Analysis Of Hospital Joint Ventures Involving Specialized Clinical Or Other Expensive Health Care Services The Agencies apply a rule of reason analysis in their antitrust review of hospital joint ventures involving specialized clinical or other expensive health care services.⁹ The objective of this analysis is to determine whether the joint venture may reduce competition substantially, and if it might, whether it is likely to produce procompetitive efficiencies that outweigh its anticompetitive potential. This analysis is flexible and takes into account the nature and effect of the joint venture, the characteristics of the services involved and of the hospital industry generally, and the reasons for, and purposes of, the venture. It also allows for consideration of efficiencies that will result from the venture. The steps involved in a rule of reason analysis are set forth below.¹⁰ Step one: Define the relevant market. The rule of reason analysis first identifies the service that is produced through the joint venture. The relevant product and geographic markets that include the service are then properly defined. This process seeks to identify any other provider that could offer a service that patients or physicians generally would consider a good substitute for that provided by the joint venture. Thus, if a joint venture were to produce intensive care neonatology services, the relevant market would include only other neonatal intensive care nurseries that patients or physicians would view as reasonable alternatives. Step two: Evaluate the competitive effects of the venture. This step begins with an analysis of the structure of the relevant market. If many providers compete with the joint venture, competitive harm is unlikely and the analysis would continue with step four described below. If the structural analysis of the relevant market showed that the joint venture would eliminate an existing or potentially viable competing provider of a service and that there were few competing providers of that service, or that cooperation in the joint venture market might spill over into a market in which the parties to the joint venture are competitors, it then would be necessary to assess the extent of the potential anticompetitive effects of the joint venture. In addition to the number and size of competing providers, factors that could restrain the ability of the joint venture to act anticompetitively either unilaterally or through collusive agreements with other providers would include: (1) characteristics of the market that make anticompetitive coordination unlikely; (2) the likelihood that others would enter the market; and (3) the effects of government regulation. The extent to which the joint venture restricts competition among the hospitals participating in the venture is evaluated during this step. In some cases, a joint venture to provide a specialized clinical or other expensive health care service may not substantially limit competition. For example, if the only two hospitals providing primary and secondary acute care inpatient services in a relevant geographic market for such services were to form a joint venture to provide a tertiary service, they would continue to compete on primary and secondary services. Because the geographic market for a tertiary service may in certain cases be larger than the geographic market for primary or secondary services, the hospitals may also face substantial competition for the joint-ventured tertiary service.¹¹ Step three: Evaluate the impact of procompetitive efficiencies. This step requires an examination of the joint venture's potential to create procompetitive efficiencies, and the balancing of these efficiencies against any potential anticompetitive effects. The greater the venture's likely anticompetitive effects, the greater must be the venture's likely efficiencies. In certain circumstances, efficiencies can be substantial because of the need to spread the cost of the investment associated with the recruitment and training of personnel over a large number of patients and the potential for improvement in quality to occur as providers gain experience and skill from performing a larger number of procedures. In the case of certain specialized clinical services, such as open heart surgery, the joint venture may permit the program to generate sufficient patient volume to meet well-accepted minimum standards for assuring quality and patient safety. Step four: Evaluate collateral agreements. This step examines whether the joint venture includes collateral agreements or conditions that unreasonably restrict competition and are unlikely to contribute significantly to the legitimate purposes of the joint venture. The Agencies will examine whether the collateral agreements are reasonably necessary to achieve the efficiencies sought by the venture. For example, if the participants in a joint venture to provide highly sophisticated oncology services were to agree on the prices to be charged for all radiology services regardless of whether the services are provided to patients undergoing oncology radiation therapy, this collateral agreement as to radiology services for non-oncology patients would be unnecessary to achieve the benefits of the sophisticated oncology joint venture. Although the joint venture itself would be legal, the collateral agreement would not be legal and would be subject to challenge. B. Example -- Hospital Joint Venture For New Specialized Clinical Service Not Involving Purchase Of High- Technology Or Other Expensive Health Care Equipment Midvale has a population of about 75,000, and is geographically isolated in a rural part of its state. Midvale has two general acute care hospitals, Community Hospital and Religious Hospital, each of which performs a mix of basic primary, secondary, and some tertiary care services. The two hospitals have largely non-overlapping medical staffs. Neither hospital currently offers open-heart surgery services, nor has plans to do so on its own. Local residents, physicians, employers, and hospital managers all believe that Midvale has sufficient demand to support one local open-heart surgery unit. The two hospitals in Midvale propose a joint venture whereby they will share the costs of recruiting a cardiac surgery team and establishing an open-heart surgery program, to be located at one of the hospitals. Patients will be referred to the program from both hospitals, who will share expenses and revenues of the program. The hospitals' agreement protects against exchanges of competitively sensitive information. As stated above, the Agencies would analyze such a joint venture under a rule of reason. The first step of the rule of reason analysis is defining the relevant product and geographic markets. The relevant product market in this case is open-heart surgery services, because there are no reasonable alternatives for patients needing such surgery. The relevant geographic market may be limited to Midvale. Although patients now travel to distant hospitals for open-heart surgery, it is significantly more costly for patients to obtain surgery from them than from a provider located in Midvale. Physicians, patients, and purchasers believe that after the open heart surgery program is operational, most Midvale residents will choose to receive these services locally. The second step is determining the competitive impact of the joint venture. Here, the joint venture does not eliminate any existing competition, because neither of the two hospitals previously was providing open-heart surgery. Nor does the joint venture eliminate any potential competition, because there is insufficient patient volume for more than one viable open-heart surgery program. Thus, only one such program could exist in Midvale, regardless of whether it was established unilaterally or through a joint venture. Normally, the third step in the rule of reason analysis would be to assess the procompetitive effects of, and likely efficiencies associated with, the joint venture. In this instance, this step is unnecessary, since the analysis has concluded under step two that the joint venture will not result in any significant anticompetitive effects. The final step of the analysis is to determine whether the joint venture has any collateral agreements or conditions that reduce competition and are not reasonably necessary to achieve the efficiencies sought by the venture. The joint venture does not appear to involve any such agreements or conditions; it does not eliminate or reduce competition between the two hospitals for any other services, or impose any conditions on use of the open- heart surgery program that would affect other competition. Because the joint venture described above is unlikely significantly to reduce competition among hospitals for open- heart surgery services, and will in fact increase the services available to consumers, the Agencies would view this joint venture favorably under a rule of reason analysis. *** Hospitals that are considering specialized clinical or other expensive health care services joint ventures and are unsure of the legality of their conduct under the antitrust laws can take advantage of the Department of Justice's expedited business review procedure announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a business review or advisory opinion request on behalf of hospitals that are considering jointly providing such services within 90 days after all necessary information is submitted. The Department's December 1, 1992 announcement contains specific guidance as to the information that should be submitted. . 4. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON PROVIDERS' COLLECTIVE PROVISION OF NON-FEE-RELATED INFORMATION TO PURCHASERS OF HEALTH CARE SERVICES Introduction The collective provision of non-fee-related information by competing health care providers to a purchaser in an effort to influence the terms upon which the purchaser deals with the providers does not necessarily raise antitrust concerns. Generally, providers' collective provision of certain types of information to a purchaser is likely either to raise little risk of anticompetitive effects or to provide procompetitive benefits. This statement sets forth an antitrust safety zone that describes providers' collective provision of non-fee-related information that will not be challenged by the Agencies under the antitrust laws, absent extraordinary circumstances.¹² It also describes conduct that is expressly excluded from the antitrust safety zone. A. Antitrust Safety Zone: Providers' Collective Provision Of Non- Fee-Related Information That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies Providers' collective provision of underlying medical data that may improve purchasers' resolution of issues relating to the mode, quality, or efficiency of treatment is unlikely to raise any significant antitrust concern and will not be challenged by the Agencies, absent extraordinary circumstances. Thus, the Agencies will not challenge, absent extraordinary circumstances, a medical society's collection of outcome data from its members about a particular procedure that they believe should be covered by a purchaser and the provision of such information to the purchaser. The Agencies also will not challenge, absent extraordinary circumstances, providers' development of suggested practice parameters--standards for patient management developed to assist providers in clinical decisionmaking--that also may provide useful information to patients, providers, and purchasers. Because providers' collective provision of such information poses little risk of restraining competition and may help in the development of protocols that increase quality and efficiency, the Agencies will not challenge such activity, absent extraordinary circumstances. In the course of providing underlying medical data, providers may collectively engage in discussions with purchasers about the scientific merit of that data. However, the antitrust safety zone excludes any attempt by providers to coerce a purchaser's decisionmaking by implying or threatening a boycott of any plan that does not follow the providers' joint recommendation. Providers who collectively threaten to or actually refuse to deal with a purchaser because they object to the purchaser's administrative, clinical, or other terms governing the provision of services run a substantial antitrust risk. For example, providers' collective refusal to provide X-rays to a purchaser that seeks them before covering a particular treatment regimen would constitute an antitrust violation. Similarly, providers' collective attempt to force purchasers to adopt recommended practice parameters by threatening to or actually boycotting purchasers that refuse to accept their joint recommendation also would risk antitrust challenge. *** Competing providers who are considering jointly providing non-fee-related information to a purchaser and are unsure of the legality of their conduct under the antitrust laws can take advantage of the Department of Justice's expedited business review procedure announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a business review or advisory opinion request on behalf of providers who are considering jointly providing such information within 90 days after all necessary information is submitted. The Department's December 1, 1992 announcement contains specific guidance as to the information that should be submitted.. 5. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON PROVIDERS' COLLECTIVE PROVISION OF FEE-RELATED INFORMATION TO PURCHASERS OF HEALTH CARE SERVICES Introduction The collective provision by competing health care providers to purchasers of health care services of factual information concerning the fees charged currently or in the past for the providers' services, and other factual information concerning the amounts, levels, or methods of fees or reimbursement, does not necessarily raise antitrust concerns. With reasonable safeguards, providers' collective provision of this type of factual information to a purchaser of health care services may provide procompetitive benefits and raise little risk of anticompetitive effects. This statement sets forth an antitrust safety zone that describes collective provision of fee-related information that will not be challenged by the Agencies under the antitrust laws, absent extraordinary circumstances.¹³ It also describes types of conduct that are expressly excluded from the antitrust safety zone, some clearly unlawful, and others that may be lawful depending on the circumstances. A. Antitrust Safety Zone: Providers' Collective Provision Of Fee-Related Information That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies Providers' collective provision to purchasers of health care services of factual information concerning the providers' current or historical fees or other aspects of reimbursement, such as discounts or alternative reimbursement methods accepted (including capitation arrangements, risk-withhold fee arrangements, or use of all-inclusive fees), is unlikely to raise significant antitrust concern and will not be challenged by the Agencies, absent extraordinary circumstances. Such factual information can help purchasers efficiently develop reimbursement terms to be offered to providers and may be useful to a purchaser when provided in response to a request from the purchaser or at the initiative of providers. In assembling information to be collectively provided to purchasers, providers need to be aware of the potential antitrust consequences of information exchanges among competitors. The principles expressed in the Agencies' statement on provider participation in exchanges of price and cost information are applicable in this context. Accordingly, in order to qualify for this safety zone, the collection of information to be provided to purchasers must satisfy the following conditions: (1) the collection is managed by a third party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association); (2) although current fee-related information may be provided to purchasers, any information that is shared among or is available to the competing providers furnishing the data must be more than three months old; and (3) for any information that is available to the providers furnishing data, there are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data may represent more than 25 percent on a weighted basis of that statistic, and any information disseminated must be sufficiently aggregated such that it would not allow recipients to identify the prices charged by any individual provider. The conditions that must be met for an information exchange among providers to fall within the antitrust safety zone are intended to ensure that an exchange of price or cost data is not used by competing providers for discussion or coordination of provider prices or costs. They represent a careful balancing of a provider's individual interest in obtaining information useful in adjusting the prices it charges or the wages it pays in response to changing market conditions against the risk that the exchange of such information may permit competing providers to communicate with each other regarding a mutually acceptable level of prices for health care services or compensation for employees. B. The Agencies' Analysis Of Providers' Collective Provision Of Fee-Related Information That Falls Outside The Antitrust Safety Zone The safety zone set forth in this policy statement does not apply to collective negotiations between unintegrated providers and purchasers in contemplation or in furtherance of any agreement among the providers on fees or other terms or aspects of reimbursement,¹⁴ or to any agreement among unintegrated providers to deal with purchasers only on agreed terms. Providers also may not collectively threaten, implicitly or explicitly, to engage in a boycott or similar conduct, or actually undertake such a boycott or conduct, to coerce any purchaser to accept collectively-determined fees or other terms or aspects of reimbursement. These types of conduct likely would violate the antitrust laws and, in many instances, might be per se illegal. Also excluded from the safety zone is providers' collective provision of information or views concerning prospective fee- related matters. In some circumstances, the collective provision of this type of fee-related information also may be helpful to a purchaser and, as long as independent decisions on whether to accept a purchaser's offer are truly preserved, may not raise antitrust concerns. However, in other circumstances, the collective provision of prospective fee-related information or views may evidence or facilitate an agreement on prices or other competitively significant terms by the competing providers. It also may exert a coercive effect on the purchaser by implying or threatening a collective refusal to deal on terms other than those proposed, or amount to an implied threat to boycott any plan that does not follow the providers' collective proposal. The Agencies recognize the need carefully to distinguish possibly procompetitive collective provision of prospective fee- related information or views from anticompetitive situations that involve unlawful price agreements, boycott threats, refusals to deal except on collectively determined terms, collective negotiations, or conduct that signals or facilitates collective price terms. Therefore, the collective provision of such prospective fee-related information or views will be assessed on a case-by-case basis. In their case-by-case analysis, the Agencies will look at all the facts and circumstances surrounding the provision of the information, including, but not limited to, the nature of the information provided, the nature and extent of the communications among the providers and between the providers and the purchaser, the rationale for providing the information, and the nature of the market in which the information is provided. In addition, because the collective provision of prospective fee-related information and views can easily lead to or accompany unlawful collective negotiations, price agreements, or the other types of collective conduct noted above, providers need to be aware of the potential antitrust consequences of information exchanges among competitors in assembling information or views concerning prospective fee-related matters. Consequently, such protections as the use of a third party to manage the collection of information and views, and the adoption of mechanisms to assure that the information is not disseminated or used in aP> manner that facilitates unlawful agreements or coordinated conduct by the providers, likely would reduce antitrust concerns. *** Competing providers who are considering collectively providing fee-related information to purchasers, and are unsure of the legality of their conduct under the antitrust laws, can take advantage of the Department of Justice's expedited business review procedure announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a business review or advisory opinion request on behalf of providers who are considering collectively providing fee-related information within 90 days after all necessary information is submitted. The Department's December 1, 1992 announcement contains specific guidance as to the information that should be submitted. . 6. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON PROVIDER PARTICIPATION IN EXCHANGES OF PRICE AND COST INFORMATION Introduction Participation by competing providers in surveys of prices for health care services, or surveys of salaries, wages or benefits of personnel, does not necessarily raise antitrust concerns. In fact, such surveys can have significant benefits for health care consumers. Providers can use information derived from price and compensation surveys to price their services more competitively and to offer compensation that attracts highly qualified personnel. Purchasers can use price survey information to make more informed decisions when buying health care services. Without appropriate safeguards, however, information exchanges among competing providers may facilitate collusion or otherwise reduce competition on prices or compensation, resulting in increased prices, or reduced quality and availability of health care services. A collusive restriction on the compensation paid to health care employees, for example, could adversely affect the availability of health care personnel. This statement sets forth an antitrust safety zone that describes exchanges of price and cost information among providers that will not be challenged by the Agencies under the antitrust laws, absent extraordinary circumstances. It also briefly describes the Agencies' antitrust analysis of information exchanges that fall outside the antitrust safety zone. A. Antitrust Safety Zone: Exchanges Of Price And Cost Information Among Providers That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies The Agencies will not challenge, absent extraordinary circumstances, provider participation in written surveys of (a) prices for health care services,¹⁵ or (b) wages, salaries, or benefits of health care personnel, 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. The conditions that must be met for an information exchange among providers to fall within the antitrust safety zone are intended to ensure that an exchange of price or cost data is not used by competing providers for discussion or coordination of provider prices or costs. They represent a careful balancing of a provider's individual interest in obtaining information useful in adjusting the prices it charges or the wages it pays in response to changing market conditions against the risk that the exchange of such information may permit competing providers to communicate with each other regarding a mutually acceptable level of prices for health care services or compensation for employees. B. The Agencies' Analysis of Provider Exchanges Of Information That Fall Outside The Antitrust Safety Zone Exchanges of price and cost information that fall outside the antitrust safety zone generally will be evaluated to determine whether the information exchange may have an anticompetitive effect that outweighs any procompetitive justification for the exchange. Depending on the circumstances, public, non-provider initiated surveys may not raise competitive concerns. Such surveys could allow purchasers to have useful information that they can use for procompetitive purposes. Exchanges of future prices for provider services or future compensation of employees are very likely to be considered anticompetitive. If an exchange among competing providers of price or cost information results in an agreement among competitors as to the prices for health care services or the wages to be paid to health care employees, that agreement will be considered unlawful per se. *** Competing providers that are considering participating in a survey of price or cost information and are unsure of the legality of their conduct under the antitrust laws can take advantage of the Department's expedited business review procedure announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a business review or advisory opinion request on behalf of providers who are considering participating in a survey of price or cost information within 90 days after all necessary information is submitted. The Department's December 1, 1992 announcement contains specific guidance as to the information that should be submitted. 7. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON JOINT PURCHASING ARRANGEMENTS AMONG HEALTH CARE PROVIDERS Introduction Most joint purchasing arrangements among hospitals or other health care providers do not raise antitrust concerns. Such collaborative activities typically allow the participants to achieve efficiencies that will benefit consumers. Joint purchasing arrangements usually involve the purchase of a product or service used in providing the ultimate package of health care services or products sold by the participants. Examples include the purchase of laundry or food services by hospitals, the purchase of computer or data processing services by hospitals or other groups of providers, and the purchase of prescription drugs and other pharmaceutical products. Through such joint purchasing arrangements, the participants frequently can obtain volume discounts, reduce transaction costs, and have access to consulting advice that may not be available to each participant on its own. Joint purchasing arrangements are unlikely to raise antitrust concerns unless (1) the arrangement accounts for so large a portion of the purchases of a product or service that it can effectively exercise market power¹⁶ in the purchase of the product or service, or (2) the products or services being purchased jointly account for so large a proportion of the total cost of the services being sold by the participants that the joint purchasing arrangement may facilitate price fixing or otherwise reduce competition. If neither factor is present, the joint purchasing arrangement will not present competitive concerns.¹⁷ This statement sets forth an antitrust safety zone that describes joint purchasing arrangements among health care providers that will not be challenged, absent extraordinary circumstances, by the Agencies under the antitrust laws. It also describes factors that mitigate any competitive concerns with joint purchasing arrangements that fall outside the antitrust safety zone.¹⁸ A. Antitrust Safety Zone: Joint Purchasing Arrangements Among Health Care Providers That Will Not Be Challenged, Absent Extraordinary Circumstances, By The Agencies The Agencies will not challenge, absent extraordinary circumstances, any joint purchasing arrangement among health care providers where two conditions are present: (1) the purchases account for less than 35 percent of the total sales of the purchased product or service in the relevant market; and (2) the cost of the products and services purchased jointly accounts for less than 20 percent of the total revenues from all products or services sold by each competing participant in the joint purchasing arrangement. The first condition compares the purchases accounted for by a joint purchasing arrangement to the total purchases of the purchased product or service in the relevant market. Its purpose is to determine whether the joint purchasing arrangement might be able to drive down the price of the product or service being purchased below competitive levels. For example, a joint purchasing arrangement may account for all or most of the purchases of laundry services by hospitals in a particular market, but represent less than 35 percent of the purchases of all commercial laundry services in that market. Unless there are special costs that cannot be easily recovered associated with providing laundry services to hospitals, such a purchasing arrangement is not likely to force prices below competitive levels. The same principle applies to joint purchasing arrangements for food services, data processing, and many other products and services. The second condition addresses any possibility that a joint purchasing arrangement might result in standardized costs, thus facilitating price fixing or otherwise having anticompetitive effects. This condition applies only where some or all of the participants are direct competitors. For example, if a nationwide purchasing cooperative limits its membership to one hospital in each geographic area, there is not likely to be any concern about reduction of competition among its members. Even where a purchasing arrangement's membership includes hospitals or other health care providers that compete with one another, the arrangement is not likely to facilitate collusion if the goods and services being purchased jointly account for a small fraction of the final price of the services provided by the participants. In the health care field, it may be difficult to determine the specific final service in which the jointly purchased products are used, as well as the price at which that final service is sold.¹⁹ Therefore, the Agencies will examine whether the cost of the products or services being purchased jointly accounts, in the aggregate, for less than 20 percent of the total revenues from all health care services of each competing participant. B. Factors Mitigating Competitive Concerns With Joint Purchasing Arrangements That Fall Outside The Antitrust Safety Zone Joint purchasing arrangements among hospitals or other health care providers that fall outside the antitrust safety zone do not necessarily raise antitrust concerns. There are several safeguards that joint purchasing arrangements can adopt to mitigate concerns that might otherwise arise. First, antitrust concern is lessened if members are not required to use the arrangement for all their purchases of a particular product or service. Members can, however, be asked to commit to purchase a voluntarily specified amount through the arrangement so that a volume discount or other favorable contract can be negotiated. Second, where negotiations are conducted on behalf of the joint purchasing arrangement by an independent employee or agent who is not also an employee of a participant, antitrust risk is lowered. Third, the likelihood of anticompetitive communications is lessened where communications between the purchasing group and each individual participant are kept confidential, and not discussed with, or disseminated to, other participants. These safeguards will reduce substantially, if not completely eliminate, use of the purchasing arrangement as a vehicle for discussing and coordinating the prices of health care services offered by the participants.²⁰ The adoption of these safeguards also will help demonstrate that the joint purchasing arrangement is intended to achieve economic efficiencies rather than to serve an anticompetitive purpose. Where there appear to be significant efficiencies from a joint purchasing arrangement, the Agencies will not challenge the arrangement absent substantial risk of anticompetitive effects. The existence of a large number and variety of purchasing groups in the health care field suggests that entry barriers to forming new groups currently are not great. Thus, in most circumstances at present, it is not necessary to open a joint purchasing arrangement to all competitors in the market. However, if some competitors excluded from the arrangement are unable to compete effectively without access to the arrangement, and competition is thereby harmed, antitrust concerns will exist. C. Example -- Joint Purchasing Arrangement Involving Both Hospitals In Rural Community That The Agencies Would Not Challenge Smalltown is the county seat of Rural County. There are two general acute care hospitals, County Hospital ("County") and Smalltown Medical Center ("SMC"), both located in Smalltown. The nearest other hospitals are located in Big City, about 100 miles from Smalltown. County and SMC propose to join a joint venture being formed by several of the hospitals in Big City through which they will purchase various hospital supplies -- such as bandages, antiseptics, surgical gowns, and masks. The joint venture will likely be the vehicle for the purchase of most such products by the Smalltown hospitals, but under the joint venture agreement, both retain the option to purchase supplies independently. The joint venture will be an independent corporation, jointly owned by the participating hospitals. It will purchase the supplies needed by the hospitals and then resell them to the hospitals at average variable cost plus a reasonable return on capital. The joint venture will periodically solicit from each participating hospital its expected needs for various hospital supplies, and negotiate the best terms possible for the combined purchases. It will also purchase supplies for its member hospitals on an ad hoc basis. Competitive Analysis The first issue is whether the proposed joint purchasing arrangement would fall within the safety zone set forth in this policy statement. In order to make this determination, the Agencies would first inquire whether the joint purchases would account for less than 35 percent of the total sales of the purchased products in the relevant markets for the sales of those products. Here, the relevant hospital supply markets are likely to be national or at least regional in scope. Thus, while County and SMC might well account for more than 35 percent of the total sales of many hospital supplies in Smalltown or Rural County, they and the other hospitals in Big City that will participate in the arrangement together would likely not account for significant percentages of sales in the actual relevant markets. Thus, the first criterion for inclusion in the safety zone is likely to be satisfied. The Agencies would then inquire whether the supplies to be purchased jointly account for less than 20 percent of the total revenues from all products and services sold by each of the competing hospitals that participate in the arrangement. In this case, County and SMC are competing hospitals, but this second criterion for inclusion in the safety zone is also likely to be satisfied, and the Agencies would not challenge the joint purchasing arrangement. *** Hospitals or other health care providers that are considering joint purchasing arrangements and are unsure of the legality of their conduct under the antitrust laws can take advantage of the Department of Justice's expedited business review procedure for joint ventures and information exchanges announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a business review or advisory opinion request on behalf of health care providers considering a joint purchasing arrangement within 90 days after all necessary information is submitted. The Department's December 1, 1992 announcement contains specific guidance as to the information that should be submitted. . 8. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON PHYSICIAN NETWORK JOINT VENTURES Introduction In recent years, health plans and other purchasers of health care services have developed a variety of managed care programs that seek to reduce the costs and assure the quality of health care services. Many physicians and physician groups have organized physician network joint ventures, such as individual practice associations ("IPAs"), preferred provider organizations ("PPOs"), and other arrangements to market their services to these plans.²¹ Typically, such networks contract with the plans to provide physician services to plan subscribers at predetermined prices, and the physician participants in the networks agree to controls aimed at containing costs and assuring the appropriate and efficient provision of high quality physician services. By developing and implementing mechanisms that encourage physicians to collaborate in practicing efficiently as part of the network, many physician network joint ventures promise significant procompetitive benefits for consumers of health care services. As used in this statement, a physician network joint venture is a physician-controlled venture in which the network's physician participants collectively agree on prices or price- related terms and jointly market their services.²² Other types of health care network joint ventures are not directly addressed by this statement.²³ This statement of enforcement policy describes the Agencies' antitrust analysis of physician network joint ventures, and presents several examples of its application to specific hypothetical physician network joint ventures. Before describing the general antitrust analysis, the statement sets forth antitrust safety zones that describe physician network joint ventures that are highly unlikely to raise substantial competitive concerns, and therefore will not be challenged by the Agencies under the antitrust laws, absent extraordinary circumstances. The Agencies emphasize that merely because a physician network joint venture does not come within a safety zone in no way indicates that it is unlawful under the antitrust laws. On the contrary, such arrangements may be procompetitive and lawful, and many such arrangements have received favorable business review letters or advisory opinions from the Agencies.²⁴ The safety zones use a few factors that are relatively easy to apply, to define a category of ventures for which the Agencies presume no anticompetitive harm, without examining competitive conditions in the particular case. A determination about the lawfulness of physician network joint ventures that fall outside the safety zones must be made on a case-by-case basis according to general antitrust principles and the more specific analysis described in this statement. A. Antitrust Safety Zones This section describes those physician network joint ventures that will fall within the antitrust safety zones designated by the Agencies. The antitrust safety zones differ for "exclusive" and "non-exclusive" physician network joint ventures. In an "exclusive" venture, the network's physician participants are restricted in their ability to, or do not in practice, individually contract or affiliate with other network joint ventures or health plans. In a "non-exclusive" venture, on the other hand, the physician participants in fact do, or are available to, affiliate with other networks or contract individually with health plans. This section explains how the Agencies will determine whether a physician network joint venture is exclusive or non-exclusive. It also illustrates types of arrangements that can involve the sharing of substantial financial risk among a network's physician participants, which is necessary for a network to come within the safety zones. 1. Exclusive Physician Network Joint Ventures That The Agencies Will Not Challenge, Absent Extraordinary Circumstances The Agencies will not challenge, absent extraordinary circumstances, an exclusive physician network joint venture whose physician participants share substantial financial risk and constitute 20 percent or less of the physicians²⁵ in each physician specialty with active hospital staff privileges who practice in the relevant geographic market.²⁶ In relevant markets with fewer than five physicians in a particular specialty, an exclusive physician network joint venture otherwise qualifying for the antitrust safety zone may include one physician from that specialty, on a non-exclusive basis, even though the inclusion of that physician results in the venture consisting of more than 20 percent of the physicians in that specialty. 2. Non-Exclusive Physician Network Joint Ventures That The Agencies Will Not Challenge, Absent Extraordinary Circumstances The Agencies will not challenge, absent extraordinary circumstances, a non-exclusive physician network joint venture whose physician participants share substantial financial risk and constitute 30 percent or less of the physicians in each physician specialty with active hospital staff privileges who practice in the relevant geographic market. In relevant markets with fewer than four physicians in a particular specialty, a non-exclusive physician network joint venture otherwise qualifying for the antitrust safety zone may include one physician from that specialty, even though the inclusion of that physician results in the venture consisting of more than 30 percent of thephysicians in that specialty. 3. Indicia Of Non-Exclusivity Because of the different market share thresholds for the safety zones for exclusive and non-exclusive physician network joint ventures, the Agencies caution physician participants in a non-exclusive physician network joint venture to be sure that the network is non-exclusive in fact and not just in name. The Agencies will determine whether a physician network joint venture is exclusive or non-exclusive by its physician participants' activities, and not simply by the terms of the contractual relationship. In making that determination, the Agencies will examine the following indicia of non-exclusivity, among others: (1) that viable competing networks or managed care plans with adequate physician participation currently exist in the market; (2) that physicians in the network actually individually participate in, or contract with, other networks or managed care plans, or there is other evidence of their willingness and incentive to do so; (3) that physicians in the network earn substantial revenue from other networks or through individual contracts with managed care plans; (4) the absence of any indications of significant de- participation from other networks or managed care plans in the market; and (5) the absence of any indications of coordination among the physicians in the network regarding price or other competitively significant terms of participation in other networks or managed care plans. Networks also may limit or condition physician participants' freedom to contract outside the network in ways that fall short of a commitment of full exclusivity. If those provisions significantly restrict the ability or willingness of a network's physicians to join other networks or contract individually with managed care plans, the network will be considered exclusive for purposes of the safety zones. 4. Sharing Of Substantial Financial Risk By Physicians In A Physician Network Joint Venture To qualify for either antitrust safety zone, the participants in a physician network joint venture must share substantial financial risk in providing all the services that are jointly priced through the network.²⁷ The safety zones are limited to networks involving substantial financial risk sharing not because such risk sharing is a desired end in itself, but because it normally is a clear and reliable indicator that a physician network involves sufficient integration by its physician participants to achieve significant efficiencies.²⁸ Risk sharing provides incentives for the physicians to cooperate in controlling costs and improving quality by managing the provision of services by network physicians. The following are examples of some types of arrangements through which participants in a physician network joint venture can share substantial financial risk: ²⁹ (1) agreement by the venture to provide services to a health plan at a "capitated" rate;³⁰ (2) agreement by the venture to provide designated services or classes of services to a health plan for a predetermined percentage of premium or revenue from the plan;³¹ (3) use by the venture of significant financial incentives for its physician participants, as a group, to achieve specified cost-containment goals. Two methods by which the venture can accomplish this are: (a) withholding from all physician participants in the network a substantial amount of the compensation due to them, with distribution of that amount to the physician participants based on group performance in meeting the cost-containment goals of the network as a whole; or (b) establishing overall cost or utilization targets for the network as a whole, with the network's physician participants subject to subsequent substantial financial rewards or penalties based on group performance in meeting the targets; and (4) agreement by the venture to provide a complex or extended course of treatment that requires the substantial coordination of care by physicians in different specialities offering a complementary mix of services, for a fixed, predetermined payment, where the costs of that course of treatment for any individual patient can vary greatly due to the individual patient's condition, the choice, complexity, or length of treatment, or other factors.³² The Agencies recognize that new types of risk-sharing arrangements may develop. The preceding examples do not foreclose consideration of other arrangements through which the participants in a physician network joint venture may share substantial financial risk in the provision of medical services through the network.³³Organizers of physician networks who are uncertain whether their proposed arrangements constitute substantial financial risk sharing for purposes of this policy statement are encouraged to take advantage of the Agencies' expedited business review and advisory opinion procedures. B. The Agencies' Analysis Of Physician Network Joint Ventures ThatFall Outside The Antitrust Safety Zones Physician network joint ventures that fall outside the antitrust safety zones also may have the potential to create significant efficiencies, and do not necessarily raise substantial antitrust concerns. For example, physician network joint ventures in which the physician participants share substantial financial risk, but which involve a higher percentage of physicians in a relevant market than specified in the safety zones, may be lawful if they are not anticompetitive on balance.³⁴ Likewise, physician network joint ventures that do not involve the sharing of substantial financial risk also may be lawful if the physicians' integration through the joint venture creates significant efficiencies and the venture, on balance, is not anticompetitive. The Agencies emphasize that it is not their intent to treat such networks either more strictly or more leniently than joint ventures in other industries, or to favor any particular procompetitive organization or structure of health care delivery over other forms that consumers may desire. Rather, their goal is to ensure a competitive marketplace in which consumers will have the benefit of high quality, cost-effective health care and a wide range of choices, including new provider-controlled networks that expand consumer choice and increase competition. 1. Determining When Agreements Among Physicians In A Physician Network Joint Venture Are Analyzed Under The Rule Of Reason Antitrust law treats naked agreements among competitors that fix prices or allocate markets as per se illegal. Where competitors economically integrate in a joint venture, however, such agreements, if reasonably necessary to accomplish the procompetitive benefits of the integration, are analyzed under the rule of reason.³⁵ In accord with general antitrust principles, physician network joint ventures will be analyzed under the rule of reason, and will not be viewed as per se illegal, if the physicians' integration through the network is likely to produce significant efficiencies that benefit consumers, and any price agreements (or other agreements that would otherwise be per se illegal) by the network physicians are reasonably necessary to realize those efficiencies.³⁶ Where the participants in a physician network joint venture have agreed to share substantial financial risk as defined in Section A.4. of this policy statement, their risk-sharing arrangement generally establishes both an overall efficiency goal for the venture and the incentives for the physicians to meet that goal. The setting of price is integral to the venture's use of such an arrangement and therefore warrants evaluation under the rule of reason. Physician network joint ventures that do not involve the sharing of substantial financial risk may also involve sufficient integration to demonstrate that the venture is likely to produce significant efficiencies. Such integration can be evidenced by the network implementing an active and ongoing program to evaluate and modify practice patterns by the network's physician participants and create a high degree of interdependence and cooperation among the physicians to control costs and ensure quality. This program may include: (1) establishing mechanisms to monitor and control utilization of health care services that are designed to control costs and assure quality of care; (2) selectively choosing network physicians who are likely to further these efficiency objectives; and (3) the significant investment of capital, both monetary and human, in the necessary infrastructure and capability to realize the claimed efficiencies. The foregoing are not, however, the only types of arrangements that can evidence sufficient integration to warrant rule of reason analysis, and the Agencies will consider other arrangements that also may evidence such integration. However, in all cases, the Agencies' analysis will focus on substance, rather than form, in assessing a network's likelihood of producing significant efficiencies. To the extent that agreements on prices to be charged for the integrated provision of services are reasonably necessary to the venture's achievement of efficiencies, they will be evaluated under the rule of reason. In contrast to integrated physician network joint ventures, such as these discussed above, there have been arrangements among physicians that have taken the form of networks, but which in purpose or effect were little more than efforts by their participants to prevent or impede competitive forces from operating in the market. These arrangements are not likely to produce significant procompetitive efficiencies. Such arrangements have been, and will continue to be, treated as unlawful conspiracies or cartels, whose price agreements are per se illegal. Determining that an arrangement is merely a vehicle to fix prices or engage in naked anticompetitive conduct is a factual inquiry that must be done on a case-by-case basis to determine the arrangement's true nature and likely competitive effects. However, a variety of factors may tend to corroborate a network's anticompetitive nature, including: statements evidencing anticompetitive purpose; a recent history of anticompetitive behavior or collusion in the market, including efforts to obstruct or undermine the development of managed care; obvious anticompetitive structure of the network (e.g., a network comprising a very high percentage of local area physicians, whose participation in the network is exclusive, without any plausible business or efficiency justification); the absence of any mechanisms with the potential for generating significant efficiencies or otherwise increasing competition through the network; the presence of anticompetitive collateral agreements; and the absence of mechanisms to prevent the network's operation from having anticompetitive spillover effects outside the network. 2. Applying The Rule Of Reason A rule of reason analysis determines whether the formation and operation of the joint venture may have a substantial anticompetitive effect and, if so, whether that potential effect is outweighed by any procompetitive efficiencies resulting from the joint venture. The rule of reason analysis takes into account characteristics of the particular physician network joint venture, and the competitive environment in which it operates, that bear on the venture's likely effect on competition. A determination about the lawfulness of a network's activity under the rule of reason sometimes can be reached without an extensive inquiry under each step of the analysis. For example, a physician network joint venture that involves substantial clinical integration may include a relatively small percentage of the physicians in the relevant markets on a non-exclusive basis. In that case, the Agencies may be able to conclude expeditiously that the network is unlikely to be anticompetitive, based on the competitive environment in which it operates. In assessing the competitive environment, the Agencies would consider such market factors as the number, types, and size of managed care plans operating in the area, the extent of physician participation in those plans, and the economic importance of the managed care plans to area physicians. See infra Example 1. Alternatively, for example, if a restraint that facially appears to be of a kind that would always or almost always tend to reduce output or increase prices, but has not been considered per se unlawful, is not reasonably necessary to the creation of efficiencies, the Agencies will likely challenge the restraint without an elaborate analysis of market definition and market power.³⁷ The steps ordinarily involved in a rule of reason analysis of physician network joint ventures are set forth below. Step one: Define the relevant market. The Agencies evaluate the competitive effects of a physician network joint venture in each relevant market in which it operates or has substantial impact. In defining the relevant product and geographic markets, the Agencies look to what substitutes, as a practical matter, are reasonably available to consumers for the services in question.³⁸ The Agencies will first identify the relevant services that the physician network joint venture provides. Although all services provided by each physician specialty might be a separate relevant service market, there may be instances in which significant overlap of services provided by different physician specialties, or in some circumstances, certain nonphysician health care providers, justifies including services from more than one physician specialty or category of providers in the same market. For each relevant service market, the relevant geographic market will include all physicians (or other providers) who are good substitutes for the physician participants in the joint venture. Step two: Evaluate the competitive effects of the physician joint venture. The Agencies examine the structure and activities of the physician network joint venture and the nature of competition in the relevant market to determine whether the formation or operation of the venture is likely to have an anticompetitive effect. Two key areas of competitive concern are whether a physician network joint venture could raise the prices for physician services charged to health plans above competitive levels, or could prevent or impede the formation or operation of other networks or plans. In assessing whether a particular network arrangement could raise prices or exclude competition, the Agencies will examine whether the network physicians collectively have the ability and incentive to engage in such conduct. The Agencies will consider not only the proportion of the physicians in any relevant market who are in the network, but also the incentives faced by physicians in the network, and whether different groups of physicians in a network may have significantly different incentives that would reduce the likelihood of anticompetitive conduct. The Department of Justice has entered into final judgments that permit a network to include a relatively large proportion of physicians in a relevant market where the percentage of physicians with an ownership interest in the network is strictly limited, and the network subcontracts with additional physicians under terms that create a sufficient divergence of economic interest between the subcontracting physicians and the owner physicians so that the owner physicians have an incentive to control the costs to the network of the subcontracting physicians.³⁹ Evaluating the incentives faced by network physicians requires an examination of the facts and circumstances of each particular case. The Agencies will assess whether different groups of physicians in the network actually have significantly divergent incentives that would override any shared interest, such as the incentive to profit from higher fees for their medical services. The Agencies will also consider whether the behavior of network physicians or other market evidence indicates that the differing incentives among groups of physicians will not prevent anticompetitive conduct. If, in the relevant market, there are many other networks or many physicians who would be available to form competing networks or to contract directly with health plans, it is unlikely that the joint venture would raise significant competitive concerns. The Agencies will analyze the availability of suitable physicians to form competing networks, including the exclusive or non-exclusive nature of the physician network joint venture. The Agencies recognize that the competitive impact of exclusive arrangements or other limitations on the ability of a network's physician participants to contract outside the network can vary greatly. For example, in some circumstances exclusivity may help a network serve its subscribers and increase its physician participants' incentives to further the interests of the network. In other situations, however, the anticompetitive risks posed by such exclusivity may outweigh its procompetitive benefits. Accordingly, the Agencies will evaluate the actual or likely effects of particular limitations on contracting in the market situation in which they occur. An additional area of possible anticompetitive concern involves the risk of "spillover" effects from the venture. For example, a joint venture may involve the exchange of competitively sensitive information among competing physicians and thereby become a vehicle for the network's physician participants to coordinate their activities outside the venture. Ventures that are structured to reduce the likelihood of such spillover are less likely to result in anticompetitive effects. For example, a network that uses an outside agent to collect and analyze fee data from physicians for use in developing the network's fee schedule, and avoids the sharing of such sensitive information among the network's physician participants, may reduce concerns that the information could be used by the network's physician participants to set prices for services they provide outside the network. Step three: Evaluate the impact of procompetitive efficiencies.⁴⁰ This step requires an examination of the joint venture's likely procompetitive efficiencies, and the balancing of these efficiencies against any likely anticompetitive effects. The greater the venture's likely anticompetitive effects, the greater must be the venture's likely efficiencies. In assessing efficiency claims, the Agencies focus on net efficiencies that will be derived from the operation of the network and that result in lower prices or higher quality to consumers. The Agencies will not accept claims of efficiencies if the parties reasonably can achieve equivalent or comparable savings through significantly less anticompetitive means. In making this assessment, however, the Agencies will not search for a theoretically least restrictive alternative that is not practical given business realities. Experience indicates that, in general, more significant efficiencies are likely to result from a physician network joint venture's substantial financial risk sharing or substantial clinical integration. However, the Agencies will consider a broad range of possible cost savings, including improved cost controls, case management and quality assurance, economies of scale, and reduced administrative or transaction costs. In assessing the likelihood that efficiencies will be realized, the Agencies recognize that competition is one of the strongest motivations for firms to lower prices, reduce costs, and provide higher quality. Thus, the greater the competition facing the network, the more likely it is that the network will actually realize potential efficiencies that would benefit consumers. Step four: Evaluation of collateral agreements. This step examines whether the physician network joint venture includes collateral agreements or conditions that unreasonably restrict competition and are unlikely to contribute significantly to the legitimate purposes of the physician network joint venture. The Agencies will examine whether the collateral agreements are reasonably necessary to achieve the efficiencies sought by the joint venture. For example, if the physician participants in a physician network joint venture agree on the prices they will charge patients who are not covered by the health plans with which their network contracts, such an agreement plainly is not reasonably necessary to the success of the joint venture and is an antitrust violation.⁴¹ Similarly, attempts by a physician network joint venture to exclude competitors or classes of competitors of the network's physician participants from the market could have anticompetitive effects, without advancing any legitimate, procompetitive goal of the network. This could happen, for example, if the network facilitated agreements among the physicians to refuse to deal with such competitors outside the network, or to pressure other market participants to refuse to deal with such competitors or deny them necessary access to key facilities. C. Examples Of Physician Network Joint Ventures The following are examples of how the Agencies would apply the principles set forth in this statement to specific physician network joint ventures. The first three are new examples: 1) a network involving substantial clinical integration, that is unlikely to raise significant competitive concerns under the rule of reason; 2) a network involving both substantial financial risk-sharing and non-risk-sharing arrangements, which would be analyzed under the rule of reason; and 3) a network involving neither substantial financial risk-sharing nor substantial clinical integration, and whose price agreements likely would be challenged as per se unlawful. The last four examples involve networks that operate in a variety of market settings and with different levels of physician participants; three are networks that involve substantial financial risk-sharing and one is a network in which the physician participants do not jointly agree on, or negotiate, price. 1. Physician Network Joint Venture Involving Clinical Integration Charlestown is a relatively isolated, medium-sized city. For the purposes of this example, the services provided by primary care physicians and those provided by the different physician specialties each constitute a relevant product market; and the relevant geographic market for each of them is Charlestown. Several HMOs and other significant managed care plans operate in Charlestown. A substantial proportion of insured individuals are enrolled in these plans, and enrollment in managed care is expected to increase. Many physicians in each of the specialties participate in more than one of these plans. There is no significant overlap among the participants on the physician panels of many of these plans. A group of Charlestown physicians establishes an IPA to assume greater responsibility for managing the cost and quality of care rendered to Charlestown residents who are members of health plans. They hope to reduce costs while maintaining or improving the quality of care, and thus to attract more managed care patients to their practices. The IPA will implement systems to establish goals relating to quality and appropriate utilization of services by IPA participants, regularly evaluate both individual participants' and the network's aggregate performance with respect to those goals, and modify individual participants' actual practices, where necessary, based on those evaluations. The IPA will engage in case management, preauthorization of some services, and concurrent and retrospective review of inpatient stays. In addition, the IPA is developing practice standards and protocols to govern treatment and utilization of services, and it will actively review the care rendered by each doctor in light of these standards and protocols. There is a significant investment of capital to purchase the information systems necessary to gather aggregate and individual data on the cost, quantity, and nature of services provided or ordered by the IPA physicians; to measure performance of the group and the individual doctors against cost and quality benchmarks; and to monitor patient satisfaction. The IPA will provide payers with detailed reports on the cost and quantity of services provided, and on the network's success in meeting its goals. The IPA will hire a medical director and a support staff to perform the above functions and to coordinate patient care in specific cases. The doctors also have invested appreciable time in developing the practice standards and protocols, and will continue actively to monitor care provided through the IPA. Network participants who fail to adhere to the network's standards and protocols will be subject to remedial action, including the possibility of expulsion from the network. The IPA physicians will be paid by health plans on a fee-for- service basis; the physicians will not share substantial financial risk for the cost of services rendered to covered individuals through the network. The IPA will retain an agent to develop a fee schedule, negotiate fees, and contract with payers on behalf of the venture. Information about what participating doctors charge non-network patients will not be disseminated to participants in the IPA, and the doctors will not agree on the prices they will charge patients not covered by IPA contracts. The IPA is built around three geographically dispersed primary care group practices that together account for 25 percent of the primary care doctors in Charlestown. A number of specialists to whom the primary care doctors most often refer their patients also are invited to participate in the IPA. These specialists are selected based on their established referral relationships with the primary care doctors, the quality of care provided by the doctors, their willingness to cooperate with the goals of the IPA, and the need to provide convenient referral services to patients of the primary care doctors. Specialist services that are needed less frequently will be provided by doctors who are not IPA participants. Participating specialists constitute from 20 to 35 percent of the specialists in each relevant market, depending on the specialty. Physician participation in the IPA is non-exclusive. Many IPA participants already do and are expected to continue to participate in other managed care plans and earn substantial income from those plans. Competitive Analysis Although the IPA does not fall within the antitrust safety zone because the physicians do not share substantial financial risk, the Agencies would analyze the IPA under the rule of reason

because it offers the potential for creating significant efficiencies and the price agreement is reasonably necessary to realize those efficiencies. Prior to contracting on behalf of competing doctors, the IPA will develop and invest in mechanisms to provide cost-effective quality care, including standards and protocols to govern treatment and utilization of services, information systems to measure and monitor individual physician and aggregate network performance, and procedures to modify physician behavior and assure adherence to network standards and protocols. The network is structured to achieve its efficiencies through a high degree of interdependence and cooperation among its physician participants. The price agreement, under these circumstances, is subordinate to and reasonably necessary to achieve these objectives.⁴² Furthermore, the Agencies would not challenge under the rule of reason the doctors' agreement to establish and operate the IPA. In conducting the rule of reason analysis, the Agencies would evaluate the likely competitive effects of the venture in each relevant market. In this case, the IPA does not appear likely to limit competition in any relevant market either by hampering the ability of health plans to contract individually with area physicians or with other physician network joint ventures, or by enabling the physicians to raise prices above competitive levels. The IPA does not appear to be overinclusive: many primary care physicians and specialists are available to other plans, and the doctors in the IPA have been selected to achieve the network's procompetitive potential. Many IPA participants also participate in other managed care plans and are expected to continue to do so in the future. Moreover, several significant managed care plans are not dependent on the IPA participants to offer their products to consumers. Finally, the venture is structured so that physician participants do not share competitively sensitive information, thus reducing the likelihood of anticompetitive spillover effects outside the network where the physicians still compete, and the venture avoids any anticompetitive collateral agreements. Since the venture is not likely to be anticompetitive, there is no need for further detailed evaluation of the venture's potential for generating procompetitive efficiencies. For these reasons, the Agencies would not challenge the joint venture. However, they would reexamine this conclusion and do a more complete analysis of the procompetitive efficiencies if evidence of actual anticompetitive effects were to develop. 2. Physician Network Joint Venture Involving Risk-Sharing And Non-Risk-Sharing Contracts An IPA has capitation contracts with three insurer- developed HMOs. Under its contracts with the HMOs, the IPA receives a set fee per member per month for all covered services required by enrollees in a particular health plan. Physician participants in the IPA are paid on a fee-for-service basis, pursuant to a fee schedule developed by the IPA. Physicians participate in the IPA on a non-exclusive basis. Many of the IPA's physicians participate in managed care plans outside the IPA, and earn substantial income from those plans. The IPA uses a variety of mechanisms to assure appropriate use of services under its capitation contracts so that it can provide contract services within its capitation budgets. In part because the IPA has managed the provision of care effectively, enrollment in the HMOs has grown to the point where HMO patients are a significant share of the IPA doctors' patients. The three insurers that offer the HMOs also offer PPO options in response to the request of employers who want to give their employees greater choice of plans. Although the capitation contracts are a substantial majority of the IPA's business, it also contracts with the insurers to provide services to the PPO programs on a fee-for-service basis. The physicians are paid according to the same fee schedule used to pay them under the IPA's capitated contracts. The IPA uses the same panel of providers and the same utilization management mechanisms that are involved in the HMO contracts. The IPA has tracked utilization for HMO and PPO patients, which shows similar utilization patterns for both types of patients. Competitive Analysis Because the IPA negotiates and enters into both capitated and fee-for-service contracts on behalf on its physicians, the venture is not within a safety zone. However, the IPA's HMO contracts are analyzed under the rule of reason because they involve substantial financial risk-sharing. The PPO contracts also are analyzed under the rule of reason because there are significant efficiencies from the capitated arrangements that carry over to the fee-for-service business. The IPA's procedures for managing the provision of care under its capitation contracts and its related fee schedules produce significant efficiencies; and since those same procedures and fees are used for the PPO contracts and result in similar utilization patterns, they will likely result in significant efficiencies for the PPO arrangements as well. 3. Physician Network That Is Per Se Unlawful A group of physicians in Clarksville forms an IPA to contract with managed care plans. There is some limited managed care presence in the area, and new plans have announced their interest in entering. The physicians agree that the only way they can effectively combat the power of the plans and protect themselves from low fees and intrusive utilization review is to organize and negotiate with the plans collectively through the IPA, rather than individually. Membership in the IPA is open to any licensed physician in Clarksville. Members contribute $2,000 each to fund the legal fees associated with incorporating the IPA and its operating expenses, including the salary of an executive director who will negotiate contracts on behalf of the IPA. The IPA will enter only into fee-for-service contracts. The doctors will not share substantial financial risk under the contracts. The Contracting Committee, in consultation with the executive director, develops a fee schedule. The IPA establishes a Quality Assurance and Utilization Review Committee. Upon recommendation of this committee, the members vote to have the IPA adopt two basic utilization review parameters: strict limits on documentation to

Statements of Antitrust Enforcement Policyin Health Care

Statements of
Antitrust Enforcement Policy
in Health Care