Northwestern Nevada Orthopaedic Surgery Alliance

Federal Trade Commission staff has advised the Northwestern Nevada Orthopaedic Surgery Alliance, an independent physician association comprised of eight competing orthopedists in Washoe County, Nevada, that some aspects of its proposed method of operating may violate federal antitrust laws.

The plan is for the Alliance to provide sub-specialty orthopaedic services through contracts with health insurers and other third-party payors in northwestern Nevada. It would be a non-exclusive venture, meaning that its member physicians also could join other such ventures. During its initial phase of operation, the Alliance plans to employ an agent to formulate proposed fee schedules based on historical data, and to accept offers of proposed contracts with third-party payors which the agent would then forward to the individual physicians to consider. The agent would work with payers to formulate prospective fee schedules. Thereafter, the Alliance plans to develop a "case-rate" system that would establish a single, fixed price for certain high-volume procedures, and to offer capitated fee structures that would provide financial incentives for the Alliance's member physicians to avoid using costly services unnecessarily or inappropriately. However, the Alliance indicated subsequently that Nevada law apparently prohibits independent physician associations from engaging in risk sharing.

In a letter signed by Mark J. Horoschak, Assistant Director for Health Care in the FTC's Bureau of Competition, the FTC staff said that agreements on price among competitors participating in joint ventures where there is not substantial integration and shared financial risk raise serious antitrust concerns and may amount to illegal price fixing. The joint venture at issue is prohibited by state law from sharing financial risk.

Networks using a messenger model need not be economically integrated to avoid antitrust enforcement risk, however. Thus, the FTC staff advised that, if some changes were made as to the functions of the independent agent, the Alliance could operate legally as a messenger model network. Among other things, the FTC staff said, the agent in the Alliance would not be able to participate substantively in the price negotiation process.

NOTE: This letter sets out the views of the staff of the FTC's Bureau of Competition, as authorized by the Commission's Rules of Practice. It has not been reviewed or approved by the Commis- sion. As the Commission's rules explain, the staff's advice is rendered "without prejudice to the right of the Commission later to rescind the advice and, where appropriate, to commence an enforcement proceeding." Staff advice concerning issues covered by the Federal Trade Commission/Department of Justice Health Care Policy Statements will be given within 90 to 120 days (depending on the topic) after all necessary information is provided.

Copies of the staff letter and the original inquiry, as well as the DOJ/FTC Statements of Antitrust Enforcement Policy in the Health Care Area, are available from the FTC's Public Reference Branch, Room 130, 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov