Yellowstone Physicians, L.L.C.

Staff of the Federal Trade Commission have advised Yellowstone Physicians, L.L.C., a proposed multispecialty physician network joint venture in Billings, Montana, that they have no present intention to recommend a challenge to the formation and operation of the network. As planned, Yellowstone will be a for-profit company owned by its physician members, who also will be the health care providers for the network. Yellowstone plans to enter into managed care provider contracts on behalf of its physician members with third-party payers. Under the contracts, participating physicians will share risk either through the use of capitated rates or through fee-for-service contracts where a substantial portion of fees due to participating physicians will be withheld and returned only if, as a group, they achieve certain quality and utilization criteria.

Yellowstone maintains that it will comprise no more than 33 percent of primary care doctors and no more than 39 percent of all active physicians in and around Billings. However, in some specialties, particularly those practiced by only one or two physicians or physician group practices, participants would comprise a majority or all of the physicians in the Billings area in that specialty. Membership in Yellowstone would be on a non-exclusive basis -- that is, physicians could participate in other such ventures in addition to Yellowstone.

"[T]he procompetitive potential of an organization that will bear risk, where [no such organization] now exists, is significant," the FTC staff said in a letter responding to a request for an advisory opinion from Yellowstone’s counsel. Yellowstone also asserted that it will present more effective competition to the Billings Clinic, a large multispecialty physician practice employing about 36 percent of the doctors in the market.

The FTC staff advisory opinion, signed by Robert F. Leibenluft, Assistant Director for Healthcare at the FTC, notes the Commission’s recent law enforcement action against a group of approximately 115 physicians in Billings over allegations that the physicians, through Montana Associated Physicians, Inc. (MAPI), had acted in concert to resist cost-containment efforts by third-party payers, including obstructing the entry of managed care plans into Billings and agreeing on prices they would accept from managed care plans. Yellowstone has advised the FTC that some of the proposed members of Yellowstone, including some members of the Organizing Group and Steering Committee, were or still are members of MAPI, but states that Yellowstone intends to operate wholly apart from MAPI.

"As was the case with the MAPI matter, . . . the proposed members of Yellowstone constitute such a high proportion of non-Billings Clinic specialist physicians in the Billings area that third-party payers seeking to contract with a Billings physician panel having a broad range of physicians’ services would have to contract either with the Billings Clinic or with many members of Yellowstone," the FTC staff said. Thus, the FTC staff letter cautioned that "unless participation in Yellowstone is non-exclusive in fact, there is considerable danger that it will restrain competition substantially."

Based on assessment of the specific facts of the Billings market, however, the staff letter concluded that the size and composition of Yellowstone’s proposed provider panel did not warrant challenge. The letter noted that Yellowstone asserted plausible business reasons for inclusion of the physicians that it proposes to have as participating providers, and that Yellow stone physicians are available to contract with other networks and plans. In addition, other panels of physicians are available to payers, including the Billings Clinic doctors. Finally, the staff said, payers have told agency officials that the Billings market has become more competi tive since the FTC investigation of MAPI, and that the case itself has made physicians more sensitive to the requirements of the antitrust laws.

NOTE: The 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 Commission. 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."

Copies of the staff advisory opinion are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street 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 news as it is announced, call the FTC NewsPhone recording at 202-326-2710.