Structuring IPAs to Jointly Negotiate Fee-for-Service Contracts Pursuant to a Clinical Integration Program

July 18, 2009

The Federal Trade Commission staff has announced in the past that it will not challenge a plan by a physicians’ association that seeks to negotiate PPO contracts with health insurance companies on behalf of all association members pursuant to a clinical integration program. On such program was developed by the Greater Rochester Independent Practice Association. The FTC staff announced this decision in a 30 page letter back on September 17, 2007. If you are intending to develop a clinically integrated IPA or wish to  convert a current IPA, this letter provides good guidance.

The physician organization—the Greater Rochester Independent Practice Association, Inc. (GRIPA)—currently has 636 physician members, making up approximately 35% of the physicians in Monroe, Wayne, and Ontario counties. GRIPA initially sought guidance from the FTC about its plans to negotiate PPO contracts, including price terms, with payers in connection with GRIPA’s sale of a program of “integrated services.” These services were to be created and employed by the association’s physician members and would, as GRIPA contended, offer a “different, higher quality, and more valuable product” that “none of its members could offer individually.” GRIPA noted in its letter to the FTC that the purpose of its clinical integration program is to create a connected community of physicians, hospitals, labs, and imaging facilities which will share electronic access to patient information and improve the overall quality of healthcare in the region. Among the features of GRIPA’s clinical integration program are:

(1) the use of clinical guidelines developed by the physicians themselves based on research into best practices;

(2) access to a secure, web-based portal for access to patient information and electronic prescribing tools;

(3) use of a virtual electronic network for physicians to securely collaborate with each other and the patients they’re treating. As a result of the efficiencies gained through collaborating, GRIPA maintained to the FTC that it could improve clinical outcomes and the quality of care given to patients and ultimately curb costs.

The FTC staff reviewed GRIPA’s proposal and also took into account GRIPA’s size, composition, form of operation, and characteristics of the market for the sale and purchase of physician services. The staff cleared the proposal despite GRIPA’s explicit admission that one objective of its plan is to contract at higher fee levels for the services of its physician members. While noting that such an objective would normally raise red flags that higher prices would result from the enhanced market power of the physicians, the staff noted that “[h]ere, however, GRIPA’s higher fee levels are anticipated as part of a program that seeks, and through the participants’ integration appears to have significant potential to achieve, greater overall efficiency and improved quality in the provision of medical care to covered persons.” The FTC staff also noted that there are other large physician networks available to contract with payers and that the agreement under which physicians affiliate is nonexclusive. Ultimately, payers who decide not to negotiate and contract jointly through GRIPA “can still deal individually or through other networks in order to obtain the services of GRIPA’s member physicians.” Thus, the FTC staff concluded that GRIPA could not improperly exercise market power as a result of the proposed clinical integration.

The FTC’s opinion in GRIPA is only the second time that the Commission staff has given a favorable advisory opinion to a clinical integration program, although it has permitted other programs to proceed without challenge and pursuant to consent orders. The last such opinion came over five years ago when the staff issued its advisory opinion letter approving MedSouth Inc.’s proposal to clinically integrate a group of competing physicians in the Denver area. The FTC staff revisited the MedSouth arrangement earlier this year and confirmed its favorable opinion.

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