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FTC Lets Physician-Hospital Group Negotiate Rates With Payers

The Federal Trade Commission (FTC) has moved further down the road of allowing "clinically integrated" networks of physicians and (in some cases) hospitals to bargain with health plans and self-insured employers on rates. In a staff report involving a Maryland physician-hospital organization (PHO), the FTC said that the PHO could negotiate with payers on behalf of its independent providers. The caveat is that the PHO, TriState Health Partners, must allow the insurers and employers who don't want to use the network to contract individually with the PHO's 212 physicians and with the Washington County Hospital of Hagerstown, MD, which is a co-owner of the PHO and a participant in the clinical integration effort.

While the FTC has acquiesced in a few similar schemes over the past few years, it first sued the Brown & Toland IPA in San Francisco and Chicago's Advocate Health Partners, a managed care contracting joint venture between the Advocate Health System and its physicians, before letting them bargain collectively through clinical integration programs. Two other IPAs, MedSouth in Denver and the Greater Rochester (NY) Independent Practice Association, solicited and received favorable FTC advisory opinions that let them move in the same direction. The significance of the TriState decision is that the FTC approved a clinical integration bargaining unit that included physicians and a hospital without litigating first.

Until recent years, the FTC held that the only independent providers that could negotiate together with payers were those that shared financial risk through capitation contracts. Any collective bargaining by providers for fee-for-service agreements was regarded as per se price fixing. But under the advisory opinion that the FTC issued in the TriState case, it will consider the PHO's joint contracting and price agreements under the "antitrust rule of reason," which gives the agency leeway to allow clinical integration as a substitute for financial risk.

What clinical integration means differs from one organization to another. In TriState's case, it will include the use of health information technology, practice guidelines, monitoring and feedback of physician performance, medical and disease management, and collaboration with payers on designing the clinical elements of the program. In essence, the physicians and the hospital will work together to improve the quality and coordination of care.

The FTC's new stance has some implications for efforts to reform the healthcare delivery system. For one thing, it seems to open the way for providers to create new arrangements that could help control costs while allowing doctors and hospitals to share in the savings. It could also encourage more IPAs and PHOs to help physicians acquire and implement electronic health records.

What remains to be seen is whether payers will go along with this quid pro quo. So far, in San Francisco, Denver, Chicago, and Rochester, local health plans have cooperated. For example, participation in Advocate's clinical integration program was included in United Healthcare's 2007 pact with the big healthcare system.

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