Staff Advisory Opinion:

Staff of the Federal Trade Commission has advised MedSouth, Inc., a multi-specialty physician practice association that includes competing primary care and specialist physicians who practice in the southern part of Denver, Colorado, that it has no present intention to recommend a challenge to the organization's proposed operation as a nonexclusive physician network joint venture. MedSouth requested a staff advisory opinion concerning its proposal to coordinate and integrate its members' provision of medical services to patients through a clinical resource management program, and then to contract for the sale of its participating physicians' services to health plans on a fee-for-service basis.

MedSouth's proposed program consists of two major parts. First, the physicians will use an electronic clinical data record system that will permit them to access and share with one another certain kinds of clinical information relating to patients. Second, the organization will adopt and implement clinical practice guidelines and measurable performance goals relating to the quality and appropriate use of services provided by MedSouth physicians. MedSouth will collect and analyze information on individual physicians' performance and on the performance of the network as a whole relative to the benchmarks, and will discipline or terminate physicians who do not fully participate in the program and adhere to its standards.

According to MedSouth's letter requesting the advisory opinion, it believes that this program will permit its physicians to improve patient care and patient outcomes, reduce medical errors, provide their services more efficiently, and reduce medical costs. All MedSouth physicians will be required to participate in these activities and to provide services under contracts between MedSouth and health plans and other third-party payers of health care services. MedSouth will operate as a nonexclusive network, which means that its physicians will be available individually to negotiate and contract with customers not wishing to purchase the network services.

The FTC staff opinion letter was signed by Jeffrey W. Brennan, Assistant Director of the Health Care Services and Products Division of the Bureau of Competition. It concluded, based on the information provided by MedSouth, that the group's proposed negotiation and contracting with payers on behalf of the network physicians should not be regarded as per se illegal price-fixing. Assessing the proposal in light of the principles articulated in the Statements of Enforcement Policy in Health Care and the Antitrust Guidelines for Collaborations Among Competitors, jointly issued by the FTC and the Department of Justice, the staff concluded that the proposed program, taken as a whole, "appears to be capable of creating substantial partial integration of the participating physicians' practices, and to have the potential to produce efficiencies in the form of higher quality or reduced costs for patient care services" rendered by physicians. The staff letter also concludes that the collective negotiation of payer contracts appears to be reasonably related to the physicians' integration through the network and reasonably necessary to the accomplishment of the network's objectives.

The FTC staff letter also addresses the likely competitive effect of the proposed conduct. The staff letter notes that, because the proposed program is yet to be implemented, it is impossible to predict the magnitude of anticompetitive or procompetitive effects that will flow from its actual operation. The available information indicates, according to the staff letter, that the MedSouth membership, as presently constituted, likely would be able to exercise significant market power if the doctors coordinated their actions outside the integrated group. It is not known, however, how many members MedSouth will represent in negotiations with health plans after the proposed program is fully implemented. The letter also notes that it cannot be determined to what extent the group will actually achieve the efficiencies it expects, and that the extent to which efficiencies actually are achieved would be an important factor in assessing the overall competitive effect of the conduct.

On balance, the staff letter concludes that the proposed program "appears to have the potential to improve the quality and effectiveness of health care services that are delivered to patients," and that it is not likely to have significant anticompetitive effects as long as the doctors are in fact willing to deal individually on competitive terms with health plans, or if final physician participation in the group is significantly smaller than MedSouth's current membership. If MedSouth members are able to use collective power to force payers to contract with the network or to pay higher prices, the letter cautions, then the staff likely would recommend that the Commission bring an enforcement action "absent evidence that substantial efficiency benefits outweighed likely anticompetitive effects." The staff opinion also advises MedSouth that the Commission staff will "closely monitor MedSouth's activities" and those of its physician members for indications of anticompetitive effects, and will recommend that the Commission take appropriate action in the event that those indications arise.

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 opinion letter are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.