FTC Staff Advises Oklahoma Physician Hospital Organization That it Will Not Recommend Antitrust Challenge to Proposed Formation of Clinically Integrated Multi-provider Network

The Federal Trade Commission’s Bureau of Competition has advised the Norman Physician Hospital Organization (Norman PHO) that staff has no present intention to recommend that the FTC challenge its proposed formation or operation of a clinically integrated health care network.  Based on Norman PHO’s representations, staff concluded that the network’s proposed activities “appear unlikely to unreasonably restrain trade.”

Norman PHO requested the advisory opinion concerning its proposal to offer clinically integrated services as a way to achieve improved quality of care, reduced costs, and increased patient satisfaction.  The network includes approximately 280 participating physicians and the hospitals in the Norman Regional Health System.

The proposal contemplates horizontal combinations or pricing agreements only in the provision of physician services.  The network’s “operations will not involve horizontal agreements among competing providers of inpatient hospital services, or outpatient hospital and ambulatory care services, because Norman Regional Health System is the only provider of such services that will participate in the network.”

To implement its clinical integration program, Norman PHO has created a new organizational structure under which its participating physicians are actively engaged in a wide array of collaborative clinical activities, including developing clinical practice guidelines and physician performance measures, conducting peer review and corrective action processes, and designing and implementing quality improvement initiatives.

The staff opinion letter was signed by Markus H. Meier, Assistant Director in charge of the Health Care Division of the FTC’s Bureau of Competition.  It concludes that the “proposed clinical integration program offers the potential to create a high degree of interdependence and cooperation among its participating physicians and to generate significant efficiencies in the provision of physician services.”  The letter also states that “Norman PHO’s proposed joint contracting appears to be subordinate to the network’s effort to improve efficiency and quality through the clinical integration of its participating physicians.”  Therefore, FTC staff determined that the proposed joint pricing and contracting activities qualify for rule-of-reason analysis, rather than being subject to a per se bar under the antitrust laws.

Although a market analysis was not performed, the letter notes that Norman PHO appears to have the potential to exercise market power in the sale of its services.  Concerns about market power, however, are mitigated by Norman PHO’s representations that it will not attempt to force payers to contract with it, and payers who do not want to contract with the network for any reason may bypass the network and contract individually with the participating providers, either directly or through other networks, and without interference from Norman PHO.

The letter concludes that Norman PHO’s proposed program “appears likely, on balance, to be pro-competitive or competitively neutral” and staff has no present intention to recommend an enforcement action.  The letter, however, cautions that “staff’s current enforcement view likely would change to the extent that, for whatever reason, Norman PHO’s actual operations deviate substantially from its proposal . . . or otherwise prove to have anticompetitive effects.”

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.”

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action.  To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20001.  To learn more about the Bureau of Competition, read Competition Counts.  Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.