While the healthcare world ponders the impact of the federal government's new antitrust guidelines for physicians, and Congress works on easing antitrust restrictions, there's a pleasant surprise from an unexpected source: a new use of a law that mandates "rule of reason" and other antitrust relief for qualifying provider networks and innovative ventures.
The National Cooperative Research and Production Act of 1993 was passed by Congress at the urging of high-technology science-based fields that sought to work together in the face of foreign competition.
The law is widely applied outside healthcare. The good news is that, properly used, the NCRPA can provide qualifying healthcare joint ventures "industrial strength" antitrust relief by:
Mandating rule-of-reason treatment at the state and federal levels and in both government and private cases. Rule of reason means plaintiffs must prove a transaction will result in substantial harm to competition, rather than allowing plaintiffs to argue that a per se violation exists.
Allowing per se theories to be attacked early in a case, before much of the expensive antitrust litigation has taken place.
Reducing treble damage exposure to single damages simply by filing a short notice with federal antitrust agencies.
Allowing defendants to recover attorneys' fees and costs whenever a plaintiff brings a case that is "frivolous, unreasonable, without foundation, or in bad faith."
Requiring no risk sharing.
Permitting competitors to share price and other sensitive cost information whenever "reasonably required" to make the joint venture work.
The NCRPA's definition of a qualifying joint venture is not a model of simplicity and clarity. It is, after all, federal legislation with the familiar designed-by-committee flavor.
Nonetheless, Congress' intent could not have been clearer, and the NCRPA's language is broad enough to protect genuine collaborative healthcare innovators.
In findings included in the bill, Congress declared that "cooperative arrangements among nonaffiliated businesses in the private sector often are essential for successful technological innovation." Congress further declared that the antitrust laws "may have been mistakenly perceived to inhibit pro-competitive cooperative innovation arrangements." Specifically, the NCRPA defines joint ventures to be "any group of activities, including attempting to make, making or performing a contract, by two or more persons for the purpose" of research, development and/or the production of innovative products and services.
The definition lists examples of the kinds of research, development and production the NCRPA does and doesn't cover, including "the production of a product, process or service" using "existing facilities" if it "involves the production of a new product or technology" and "exchanging information among competitors relating to costs, sales, profitability, prices, marketing or distribution" so long as "reasonably required" to carry out the venture.
There are some caveats. This is a new law, so the courts haven't answered all the questions raised by the NCRPA in applying the act to healthcare or other fields. The federal government is still trying to figure out what it means, and antitrust litigators only grudgingly give up the leverage that per se theories provide.
If NCRPA is applied and rule-of-reason treatment is mandated, it doesn't mean provider joint ventures will always win in court. The rule of reason does not mean antitrust immunity, but it does make it harder for plaintiffs to prove their case.
The NCRPA also won't protect every conceivable provider joint venture. For example, a provider cartel that acts solely to maintain or obtain fairer prices paid by third-party payers will not benefit from the statute.
On the other hand, the NCRPA provides the kind of industrial strength antitrust relief plaintiffs of all persuasions, government and private, hate. For one, the NCRPA is binding on courts, on private parties, state attorneys general and the federal government. Also, the NCRPA is much stronger than agency guidelines can ever be.
A practical example illustrates the power of the NCRPA. Imagine you are a network of doctors and hospitals poised to land a dream business deal with an employer with 50,000 workers.
The employer, like most employers, is self-insured under the Employee Retirement Income Security Act and will not capitate. As a result, neither the network nor the employer is burdened by state regulation, state reserve requirements or state mandates.
The network will be rewarded if it delivers better quality and lower costs based on an overall budget target, but no provider will be at risk (other than for administrative costs) to assure ERISA pre-emption and avoid unacceptable incentives not to provide needed care. The employer and its third-party administrator will share their computer system and detailed pricing and claims data for the past several years with the network. At least 50% of local doctors and hospitals must participate, on a nonexclusive basis.
Unfortunately, this great business opportunity poses antitrust trouble. First, local competitors are sure to bring the "antitrust case of the century." Second, a huge provider panel not merged under common control that shares price information and has no risk sharing is way outside the federal guidelines.
What to do? The NCRPA reduces these antitrust risks substantially when used with standard antitrust practice and case law.
First, the letter and spirit of the NCRPA applies, since the provider network, employer and third-party administrator provide a textbook example of a "pro-competitive cooperative innovation arrangement." Second, no risk sharing is involved, but the NCRPA applies anyway, since none is required.
Third, if an antitrust case is brought, it can be attacked early. Rule-of-reason treatment is mandatory (if the network is put together properly), and plaintiffs are stripped of their per se theories.
Fourth, the tables are turned, and the plaintiffs risk serious exposure for all network legal fees and costs, since this case would be frivolous, unreasonable, without foundation and/or in bad faith.
Finally, even though the network has a "huge" panel, it is nonexclusive and thus, if properly handled, will prevail under the rule of reason.