FTC Isssues Staff Advisory to Phoenix Medical Network, Inc.

Staff of the Federal Trade Commission have advised Phoenix Medical Network, Inc., a proposed physician network in Erie, Pennsylvania, that they have no present intention to recommend a challenge to the formation and operation of the network. As planned, Phoenix will be a for-profit company owned by its physician members, most of whom will be health care providers for the network. Phoenix plans to enter into provider contracts with third-party payers on behalf of its physician members. Under the contracts, participating physicians will share substantial financial risk by agreeing to provide all medically necessary services to enrollees for a percentage of the insurance premiums collected by the payers. All participating providers will participate in ongoing utilization management review, quality assurance programs, and credentialing programs undertaken by Phoenix.

Membership in Phoenix is limited to licensed Medical Doctors or Doctors of Osteopathy engaged in the practice of medicine in a ten-county area (the "Primary Service Area") of northwestern Pennsylvania. The 10-county Primary Service Area consists of Erie County and the surrounding counties of Cameron, Crawford, Elk, Forest, McKean, Mercer, Potter, Venango and Warren. Participation in Phoenix is nonexclusive -- that is, physicians could participate in other such ventures in addition to Phoenix. Phoenix has 218 shareholders, who are approximately 40% of all the physicians in the represented specialties in Erie County, and approximately 18% of such physicians in the Primary Service Area.

The FTC staff advisory, signed by Robert F. Leibenluft, Assistant Director for Healthcare at the FTC, responded to a request for an advisory opinion from counsel for Phoenix. According to the letter, Phoenix shareholders include 33% of the family practitioners, 28% of the internists, and 35% of the pediatricians in Erie County, a level of participation, on a non-exclusive basis, that "does not appear likely to present a significant risk of competitive harm" in this market. In some specialty areas, however, Phoenix includes a high proportion of available physicians in the area. The letter states that the scope of participation is cause for concern, but that in the specific context of the Erie market, the staff determined not to recommend a challenge to the formation of Phoenix based on the size and composition of its proposed provider panel. The staff letter noted that Phoenix asserted plausible business reasons for inclusion of the physicians that it proposes to have as participating providers, that payers did not express concern that the formation of Phoenix was likely to directly impede competition by managed care plans, so long as it was non-exclusive in fact, and that Phoenix’s proposal for its participating physicians to accept financial risk has the potential to inject a new type of competition into the market.

The staff letter cautioned, however, that Phoenix could raise a significant potential danger to competition if its members "refuse to participate in other managed care plans, if they agree to participate only on terms comparable to those offered by Phoenix, or if they otherwise use Phoenix as a vehicle to coordinate their pricing behavior."

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 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.