While the Federal Trade Commission's physician price-fixing investigation continues to scrutinize independent practice associations, the antitrust regulator seems to be playing "good cop" as well, welcoming business models that allow otherwise competing physicians who clinically integrate to legally contract jointly with payers.
Healthcare antitrust lawyers and IPA officials say the search for the holy grail of FTC-approved clinical integration is continuing two and a half years after the agency approved a Denver-area IPA's clinical integration program in a historic advisory opinion.
Antitrust insiders predict FTC approval of another IPA clinical integration plan by year-end with several other IPAs expressing interest in the model.
Further signaling the FTC's openness to clinical integration was this summer's release by the commission and the U.S. Justice Department's antitrust division of their joint 361-page report on healthcare competition. In that report, which was gleaned from two years of public hearings, the agencies restated and expanded their support for clinical and financial integration and pay-for-performance programs that improve quality and efficiency.
For some IPAs, the FTC's interest can't come soon enough.
In an industry sector rocked by costly and intrusive federal investigations, the FTC has approved only one clinical integration program in the nearly eight years since it and the Justice Department released their Statements of Antitrust Enforcement Policy in the Health Care Area. Those statements established an antitrust safety zone allowing IPAs that share financial risk or are clinically integrated to jointly contract. Some health lawyers and IPA officials faulted the FTC for providing too little guidance on how to create these "safe" joint-contracting schemes.
At the same time, FTC officials and others said the industry has been slow to embrace clinical integration and develop business models.
This summer, MedSouth, the only IPA to date to receive FTC clinical integration approval, marked the completion of its first full year of contracting. Its 100 primary-care physicians and 200 specialists serve south Denver and Arapahoe County.
MedSouth received its favorable FTC advisory opinion in February 2002. It allows the IPA to contract on behalf of its independent physicians with the stipulation that they share and implement clinical guidelines in their practices, computerize their offices and develop common electronic medical records accessible to all members. The FTC also included a warning: They'd be watching. Other IPAs may soon join MedSouth.
Modern Physician has learned that San Francisco-based Brown & Toland Medical Group has submitted a proposal seeking an FTC blessing of its clinical integration plan. If the plan passes regulatory review, the FTC will have given a favorable opinion for joint-contracting to a group it had accused of price-fixing in 2003.
In February, the 1,545-physician group settled the dispute by signing a consent decree prohibiting it from negotiating with payers on behalf of physicians or setting contract terms for physicians without further clinical or financial integration.
Brown & Toland Chief Executive Officer Gloria Austin says the IPA submitted its proposal as part of an overall global, all-products strategy. Only about 600 of Brown & Toland's physicians would participate in the network proposal seeking FTC approval, but it includes 48 medical specialties. Brown & Toland serves about 200,000 patients.
"What we wanted to do was take all the things we do extremely well on the HMO side, such as managing care, and apply it to other products, primarily PPOs, because of their growth in the marketplace," Austin says. "Our overriding goal is to propose an FTC-approved template that would allow us to jointly negotiate."
Austin says components of Brown & Toland's plan include reviews of practice patterns, claims data and outlier payments, so it can "look at care retrospectively and prospectively change behavioral patterns to make sure there is a managed-care component to the PPO product. We continue to develop case-management programs on the HMO side that will be offered on the PPO side."
In addition to Brown & Toland, at least two other California IPAs are seeking FTC letters approving their models. The IPA push for FTC approval comes in response to a change in the healthcare insurance market as commercially insured patients continue to move into PPO plans from HMOs.
Estimates of the number of IPAs nationally vary from 1,200 to 2,000, according to the report on competition in healthcare.
Some IPAs that were not financially or clinically integrated saw salvation in the antitrust agencies' 1996 healthcare statements allowing a "messenger model" as a legal means to collectively negotiate contracts. Under a messenger model, an organization such as an IPA transmits contract information "upstream" to members from payers and "downstream" from individual members but does not negotiate or set fees or refuse to pass on offers.
But health lawyers say many IPAs either misunderstood or ignored the messenger model format and "nakedly fixed prices," according to the FTC complaints. Section 1 of the Sherman Antitrust Act prohibits agreements that unreasonably restrain trade. Courts long have condemned provider price-fixing arrangements as inherently illegal. While the FTC has pursued physician price-fixing allegations for decades, it ramped up enforcement in 2001 when former FTC Chairman Timothy Muris was named to head the agency. Muris quickly made physician price-fixing his top priority in healthcare, filing complaints against nearly 20 IPAs and signing "cease and desist" consent decrees with most of them. Sources say the price-fixing investigations are likely to continue, despite Muris' departure from the FTC in July, with at least five IPAs still under investigation.
To date, only two IPAs have challenged the FTC's price-fixing complaints. North Texas Specialty Physicians, Fort Worth, awaits an administrative law judge's decision, which is expected by early November. ENH Medical Group of Evanston, Ill., along with Evanston Northwestern Healthcare, was sued by the FTC in February.
Jeffrey Brennan, who heads the healthcare section of the FTC's Bureau of Competition, says in the past year he's seen more quality-driven clinical integration proposals from IPAs.
"Without commenting on their merits, I have seen a recent evolution in the seriousness of those proposals over previous years," Brennan says. "Rather than using the term 'clinical integration' merely to escape per se price-fixing allegations, these have been serious efforts to improve patient care."
So what does it take to win FTC approval, particularly when the agency has never defined clinical integration?
Brennan says the FTC has always been open-minded about business plans proposing to "build a better mousetrap" by improving quality and reducing duplication and inefficiency.
"The antitrust issues haven't changed," he says. "We still engage in antitrust analysis and even enforcement when necessary, but the business models and approaches have changed, and we need to look at that. It involves a lot of work, but we're open to ideas."
Through a Washington lawyer -- former FTC official Richard Feinstein of the firm Boies, Schiller & Flexner -- Brown & Toland declined to further discuss its proposal until the FTC completes its review.
Brennan, too, refused to comment. He says the agency should leave the development of clinical integration models to providers and their legal counsel.
"The lawyers and economists of the FTC are not here to recite for providers the business models they should develop to create efficiencies and improve the quality of the care they deliver," Brennan says. "That's for the providers to do. One risk for the FTC staff would be to describe a clinical integration model or program that might channel activity into that model, which might not be a good model."
Some healthcare lawyers doubt that competing physicians can ever achieve clinical integration without financial integration.
"If physicians clinically integrate it usually makes sense for them to financially integrate as well, because to practice more efficiently and improve quality, they want to receive some of the financial benefits for their efforts, and that's most easily achievable only by forming larger groups," says Douglas Ross, a lawyer with the firm Davis Wright Tremaine.
Ross says the kind of clinical integration defined in the MedSouth advisory opinion requires a substantial amount of money and commitment to practice medicine in a common manner.
"If they're willing to do that, the next logical step is forming a single group practice, not the 'halfway house' of clinical integration. There's not a big clamor by doctors to integrate like the doctors in MedSouth," Ross says.
He says some doctors view clinical integration as a panacea that would allow them to jointly negotiate fees. "But the antitrust agencies don't see things that way," he says.
Healthcare antitrust lawyer David Marx of the firm McDermott, Will & Emery says most independent physicians don't want financial integration and aren't prepared to give up their independence to achieve it.
"It's not clear whether most physicians are willing to make the necessary investment in computers and information systems and engage significantly in information-sharing," Marx observes. "Physician networks also have to be exclusionary and selective and many doctors are unwilling to exclude other doctors."
Clinical integration became an option for Ellen Burkett, M.D., in 2001. Burkett, vice president and clinical director of Centennial, Colo.-based MedSouth, says the IPA had been doing capitation contracting.
"It didn't go well for us," she remembers. "And it didn't go well for the health plans either. Most other local IPAs shut down. We lacked the right information. Like everyone else, we were trying to figure out whether to just go away or reconstruct ourselves."
Burkett says the group invested $200,000 to $300,000 in software, legal fees, network development, consultants and electronic medical record infrastructure to obtain the advisory opinion. "Starting out from scratch is not cheap," she says. "But we've developed a pathway we're willing to share."
She says new physician groups participating in the clinical integration network, after purchasing their own computers, would pay about $100 per doctor per month -- approximately $80 a month for the DSL Internet connection and another $20 per month for the intranet network connection. Burkett says when MedSouth began the process, 20% of its physician members didn't own office computers and 50% lacked Internet access.
"That's part of the beauty of this: It's pretty simple and not all that expensive," Burkett says.
MedSouth crafted its request for an FTC advisory opinion with the advice of its lawyer Jeff Miles, a healthcare antitrust specialist with the firm Ober Kaler. In moving ahead with its clinical integration plan, MedSouth expected to lose more than 100 of its 400 members -- which it did -- but the IPA has suffered few subsequent defections.
"We've been stable since then," Burkett says. She says changes in FTC management and responses to agency information requests delayed the process. "Everybody had to sign a new participation agreement and agree to the terms, having computer systems in their offices, and sign off on the clinical guidelines. It took a while to make sure everyone's systems were up and running."
Anthem, which operates the Colorado Blue Cross and Blue Shield plan, signed up for joint-contracting first.
"We finished our first full year of data (June 30) with them and we did well," Burkett says. "They were surprised. It means physicians will see some rewards from pay for performance. And they were glad to see we achieved our goals."
Janet Pogar, Anthem of Colorado's director of contracting, negotiated the MedSouth contract. She remembers being excited that "an IPA was not just talking price only, but came forward with something that seemed to have meat to it."
Pogar says MedSouth was prepared to commit its proposal to paper and contract to meet quality metrics. "The first year, they surpassed every goal they set forward," Pogar says. "We didn't think their stretch goals (highest achievable scores) would be attainable. But they really worked with their doctors to improve, and set priorities on meeting their goals on immunizations, mammograms and other tests. While we only contracted with them for our HMO population, we believe that the resulting efficiencies will help all of our members they serve across the board."
Pogar says some Anthem officials were skeptical when MedSouth first proposed its clinical integration plan.
"But as we walked through the steps with them, we all came to believe in what they were doing. It didn't happen overnight. But we had a long-standing history and relationship with them and they had strong credibility with us. We wanted to continue to do business with them," Pogar says.
Burkett says MedSouth is at work on its second year and hopes to spread the word regarding its success.
"One of biggest frustrations is getting health plans on board," Burkett says. "Anthem is a shining exception. We want to work with United and Aetna and PacifiCare, but it's been difficult to get plans interested. They're telling us their business is moving from HMO to PPO, and historically PPOs haven't had to measure quality. We're trying a new tack, and this week we're meeting with employers."
She says the pay-for-performance bonuses for achieving the Anthem targets do not represent big money, but the extra pay more than covers a physician's investment and pays off in other ways.
"We know our patients are doing better," she says.
MedSouth attorney Miles attributes the lack of payer interest to two factors.
"Most large payers are very skeptical about any type of physician organizations engaging in joint-contracting, but I also wonder how seriously interested payers are in quality and quality measurements, as opposed to price," he observes. "I am surprised that there have not been others. And I have also wondered why there hasn't been another FTC letter relating to clinical integration."
Bart Asner, M.D., CEO of Monarch HealthCare, a 1,600-physician IPA headquartered in Irvine, Calif., says the FTC has not established any bright line defining clinical integration.
"They're not prepared to say what it is, but rather, give some guidance and flexibility," Asner says. "And that's part of the challenge."
"I'm a firm believer that integrating care is cost-effective, and in the end costs will go down through decreased hospitalization, less duplication and greater efficiency with fewer errors," he says.
Donald Crane, president and CEO of Los Angeles-based California Association of Physician Groups, which represents 145 organizations contracting with 40,000 physicians, says the FTC has demonstrated a growing receptiveness to clinical integration, but the dearth of FTC guidance has slowed adoption.
"It's hard for people to know how to proceed, and if you misstep, you could get prosecuted," he says. "But we think that inroads are being made by some groups, and we expect the FTC will give the green light to a California IPA soon."
Miles says he was heartened by the recent antitrust agencies' receptiveness to clinical integration programs.
"You're not going to get laughed out of the room," he predicts. "And you'll get a fair hearing."