New Jersey Pharmacists Association

Staff of the Federal Trade Commission have advised the New Jersey Pharmacists Association (NJPA) that they would not recommend a challenge on antitrust grounds to a plan to establish a pharmacist network offering health education and monitoring services to diabetes and asthma patients. Under the NJPA plan, participating pharmacists would, among other things, meet with patients and assess their condition, review their medication history, and set objectives for management of the disease. In its request for an advisory opinion from the FTC, NJPA stated that controlled clinical studies have shown that such services can reduce payer's costs and improve the health of asthma and diabetes patients. NJPA intends to market these services to insurance companies, health maintenance organizations, managed care organizations, pharmacy benefit managers and other third party payers. Any New Jersey pharmacist who satisfactorily completes certain educational requirements will be eligible for NJPA network membership and participation.

The staff advisory opinion, signed by Michael D. McNeely, an Assistant Director in the FTC's Bureau of Competition, cited the analytical principles of Statement 9 of Department of Justice/Federal Trade Commission 1996 Statements of Antitrust Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust ("Health Care Statements"). As discussed in the Health Care Statements, "naked agreements" among competitors that fix prices are per se illegal under the antitrust laws. However, when a joint venture involves significant integration among competitors, the rule of reason may apply to price-related agreements that are reasonably necessary to achieve procompetitive benefits.

The Health Care Statements provide for rule of reason treatment for certain kinds of risk sharing arrangements among health care providers. For its patient education services, NJPA has posited two alternative means of compensation for participating pharmacists. "Both of these alternatives appear to qualify as the types of financial risk-sharing contemplated by the Health Care Statements," according to the staff. One NJPA contracting approach would be to negotiate a capitated fee, a flat payment per month for each beneficiary the payer covers. In the alternative, NJPA might negotiate what it refers to as a "shared risk reward" contract, in which the pharmacies share in the cost savings achieved in treating high risk patients.

Under the capitation approach, a member pharmacist who has patients that persistently fall outside of the group norm, in terms of health improvement and costs to NJPA, could prevent NJPA from achieving the goals of the capitation contract. If, despite peer advice from NJPA, this member's problems persist, he or she will be expelled from the network. "This form of risk sharing among network members, based upon capitation, is sufficient to bring the joint fee setting arrangement outside of per se treatment and into the rule of reason, particularly because the risk sharing mechanism is accompanied by a program that will monitor and seek to improve the performance and efficiency of network members," the staff letter said.

Under the "shared risk reward" approach, the staff letter noted that NJPA and the payer would identify a population of patients, such as all the people covered by the health plan who were diagnosed with diabetes as of January 1 of the previous year. Then, if overall costs for the identified group are reduced compared with a baseline period, such as six months during the previous year, the network pharmacists will receive part of the savings as compensation. NJPA's quality assurance panel and peer review officer will assist NJPA in controlling costs under this payment plan. The Health Care Statements describe as substantial financial risk sharing a venture "establishing overall cost or utilization targets for the network as a whole, with the provider participants subject to subsequent substantial financial rewards or penalties based on group performance in meeting the targets." "In this instance," according to the staff letter, "the risk shared among NJPA member pharmacies is indeed substantial because if there is no reduction in health care expenditures the member pharmacists receive nothing. This 'shared risk reward' arrangement would be analyzed under the rule of reason."

Under a rule of reason analysis, the competitive effects of a multiprovider network are evaluated in each of the relevant markets in which it may have a substantial impact. If a multiprovider network has a substantial share of any of the relevant markets, it could, depending on other factors, increase the price of such services above competitive levels. "Of primary concern, of course, is the effect of the network's activities on price and output in the market that includes patient education services of the type provided by the network and its members," according to staff letter. "An important collateral concern is the danger that participants could exchange competitively sensitive information that would allow them to coordinate activities outside of the joint venture. Here such collateral concerns might arise with respect to the market for prescription drugs."

The staff letter noted that the venture proposed by NJPA involves no agreement on drug prices, just the price of patient education services. "It would seem to create no greater opportunity for collusion on the sale of prescription drugs than does the perfectly lawful existence of NJPA itself," staff said.

The staff letter cautioned, however, that in the markets for diabetes or asthma patient self-management education services, the proposed networks do entail agreement among pharmacists on the prices charged to third party payers. "This could raise serious concerns if the venture had such a large proportion of the providers of the service at issue that it could exercise market power over buyers, but that does not appear to be a significant danger here," staff said. Although NJPA could potentially enroll a large percentage of pharmacists in its networks, pharmacists are not the only providers eligible to supply the services in question. Under state law in New Jersey, doctors, registered dieticians, and nurses, physicians assistants and other health care professionals who receive certification can provide such compensable diabetes self-management education services in competition with pharmacists. While there is no legislation governing compensation for providing asthma education, physicians, respiratory therapists and registered clinical nurses with backgrounds in pulmonary disorders can provide it. In addition, information submitted by NJPA to the FTC indicates that insurance companies and other payers will be setting up their own networks of providers in competition with NJPA. Other pharmacy and non-pharmacy alternatives would appear to negate the possibility that high rates of participation in NJPA could give its pharmacists the power to raise prices for patient self-management education to anticompetitive levels. "On balance, the benefits to competition offered by the creation of the NJPA networks outweigh the minimal risks to competition, if any, posed by the joint price negotiation that is a necessary part of the venture," the staff letter concluded.

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 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 are available 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. 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