Health Care Management Associates

5
..
-. FEDERAL fRADE COMMISSlON
JUN 	7 1983
Irwin S. 	Saith, 	M.D.
President
H e a l t h C a r e Management 	Associates
P e O eB o x 	476
iLi0areitown9 N c r 	Jecsry 	08i57 	. .
Dear 	Gr. 	a i t h :
T h i s 	letter 	responds 	to 	your 	request 	for 	a n 	advisory 	opinion
concerning 	a 	proposed 	n C o o p e r a t i n g Provider 	P r o g r m n 	( n C P P w ) by
Beaith 	C a r e Kanagement 	Associates 	("Hadn) for 	the 	organization,
financing, and 	delivery 	of 	health 	c a r e 	services. 	EiGiiA 	is 	a 	pri-
vate, 	for-profit 	firm 	incorporated 	under 	the 	laws 	of 	the S t a t e 	o f
Wew 	Jersey. 	Its 	purpose 	is 	'to 	provide 	professionar 	consulting 	a n d
administrative 	services 	in 	order 	to 	promote 	cost-containment 	in 	the
heaith 	care 	industry." 	Y o u 	a l s o 	have 	informed 	us 	that 	"no 	actively
practicing 	provider, 	hospital, 	payer 	( e m p l o y e r or 	insurer) 	haq 	any
direct 	or 	indireet 	financial, 	controlling, 	or 	non-controlling
interest 	in IX&Arn
T h e C o m n i s s i o n 	understands 	that 	nQLci 	w i s h e s 	to 	establish 	and
operate 	the Cooperating 	Provider 	P r o g r a m 	"to 	promote 	competition
. 	. 	. by 	encouraging 	the 	awareness 	of 	cost 	[ o f health 	care] 	on 	the
part 	o f 	the 	user 	and 	t o - ' p r e s s u r e ' individual 	physicians, 	hospitals
and 	other 	PPOs 	[preferred 	provider 	organizations) 	to 	be 	cost 	com-
petitive 	. 	. 	. 	." 	The C o o p e r a t i n g 	Provider 	P r o g r a m 	is 	a 	variation
on 	the 	so-called 	"preferred 	provider 	organization," 	or 	"PPO," w i t h
WiA 	serving 	as 	the 	intermediary 	between 	health 	care 	pryriders
wishing 	to 	" s e l i n 	their 	services 	and 	third-party 	payers- 	wisliing
to n p u r c h a s e * those 	p r o v i d e r s ' s e r v i c e s 	on 	b e h a l f 	of 	their 	insureds,
"or beneficiaries.
8 li 	Third-party 	payers, 	such 	as 	insurance 	c o m p a n i e s , service 	benefit
companies 	or 	employers, 	are 	entities 	that 	either 	reimburse
patients 	for 	ali 	or 	part 	of 	the 	cost 	of 	medical 	and 	health 	care
services 	or 	make 	direct 	payments 	to 	providers 	of 	those 	services
on 	behalf 	of 	patients.

Hrwin 	S 	2ith, M.D.
P a g e 	2
intends 	to 	contraet 	individually 	w i t h 	health 	care 	pro-
viders 	such 	as 	allopathic 	and 	osteopathic 	physicians, 	podiatrists.,
oral 	surgeons, 	clinical 	psychologists, 	and 	possibly 	also 	optome-
trists, 	dentists, 	nurse m i d w i v e s , 	and 	physical 	therapists. 	HQllA
will 	not 	enter 	into 	cooperating 	provider 	agreements with 	any 	groups
or 	organizations 	of 	independently 	practicing 	c o m ~ e t i n gproviders;
it 	may 	enter 	into 	s u c h 	agreements with 	integrated 	group 	practices,
professional 	partnerships, 	and 	institutions 	employing 	salaried
professional 	staff. 	"Cooperating 	providersm 	will 	a g r e e 	to 	provide
health 	care 	services. to 	insureds 	o r - b e n e f i c i a r i e s covered 	by 	third-
pasty 	payers 	that 	eontract .with m	I	A 	to 	o f f e r the C o o p e ~ L t i n g
provider 	Program. 	c o o p e r a t i n g 	providers will 	total 	not 	more 	t h a n
10-15 	percent 	of 	all 	local 	a r e a 	providers, 	w i t h 	this 	participation
rate 	relatively 	u n i f o r m across 	specialties.
Cooperating 	providers 	will 	have 	a 	choice 	between 	two m e t h o d s
o f 	reimbursement 	determined 	by 	HQU: 	1) 	the 	lesser 	of 	the 	c h a r g e s
submitted 	by 	the 	cooperating 	provider 	or 	a m a x i m u m 	payment 	schedule
f o r services 	determined 	b y 	HQW; or 	2) 	the 	c o o p e r a t i n g 	provider's
"usual, 	customary 	and 	reasonableR 	f e e for. the 	service, 	less 	a 	per-
centage 	discount 	( u p 	to a m a x i m u m 	o f 	iS 	percent) 	as 	set 	forth 	in
the 	third-party 	payer's 	cQntract 	w i t h 	WbW. 	Each 	c o q e r a t i n g
8	provider 	will 	decide 	independently whether 	to 	contract 	with
and will 	continue 	to 	set 	his 	or 	her 	charges 	for 	services 	inde-
pendent 	o f 	any 	other 	cooperating 	providers. 	N o t h i n g 	in 	the
Cooperating 	Provider 	P r o g r a m 	or 	the 	cooperating 	provide-r 	agreement
will 	affect 	the 	charges 	that 	a 	cooperating 	provider 	m a y 	make 	to 	*
patients 	not' covered 	by 	the C o o p e r a t i n g 	Provider 	Program.
Reimbursement 	to 	a 	cooperating 	provider 	under 	the C o o p e r a t i n g 	Pro-
vider 	P r o g r a m 	for 	services 	covered 	by 	the 	p r o g r a m will 	constitute
payment 	in 	full 	to 	the 	cooperating 	provider,
HGMA will 	prepare 	and 	periodically 	update 	a 	directory 	or'
"cooperating 	p r o v i d e r s n 	for 	distribution 	to 	persons 	covered 	by
third-party 	payers 	under 	the C o o p e r a t i n g 	Provider 	Program. 	T h i r d -
party 	payers 	using 	the C o o p e r a t i n g 	Provider 	P r o g r a m will 	incor-
porate 	in 	their 	c o v e r a g e 	provisions 	certain 	f i n a n c i a l - i n c e n t i v e s
for persons 	covered 	under 	the C o o p e r a t i n g 	Provider 	P r o g r a m 	to
encourage 	use 	of 	the 	services 	o f cooperating 	providers. 	Benefi-
ciaries 	remain 	free, 	however, 	to 	obtain 	covered 	services 	from
providers 	w h o 	are 	not 	"cooperating 	providers," 	albeit 	at 	the 	cost
o f 	incurring 	some 	additional, 	-ut-of-pocket 	expense 	that 	would 	not
exist 	i i 	a 	cooperating 	provide. 	a r e used.

8 I r w i n S . 	Smith, M.D.
P a g e 	3
will 	negotiate 	eontracts 	for Cooperating 	Provider 	P r o g r m
services w i t h 	third-party 	payers, 	such 	as 	eomnereial 	insurance
c a r r i e r s 	and 	self-funded 	or 	self-insured employer 	groups. 	T h e s e
p a y e r s make 	all 	claims 	payments, 	and 	underwr i te 	any 	insurance
risk. 	E C U does 	not 	act 	as 	a n 	insurer 	in 	the C o o p e r a t i n g 	Provider
Program. 	HCXA a l s o will 	provide 	utilization 	r e v i e w 	and 	quality
assurance 	services 	under 	the Cooper at ing 	Provider 	Program, 	As 	pay-
ment 	for 	its 	services, l3Ch4A will 	receive 	an 	annual 	fee 	negotiated
w i t h 	each 	third-party 	payer. 	Cooperating 	providers 	will m a k e 	n o
p a p e n t 	to %a&,.	aithough 	a 	"nonainal 	annual 	lnembershlp 	f e e n m 	y 	be
initiated 	at 	a 	later 	date.
plans 	to market 	the Cooperating 	Provider 	P r o g r a m 	initially
in Burlington, 	C a m d e n , 	and Gloucester 	C o u n t i e s 	of 	N e w 	Jersey, 	with-
possible 	expansion 	to 	adjacent 	counties 	in 	the 	future. 	T h e 	primary
market 	for 	the C o o p e r a t i n g 	Provider 	P r o g r a m 	consists 	o f 	those 	per-
sons 	in 	this 	geographic 	area w h o 	are 	covered 	under 	eomnercial 	and
self-insurance 	programs, 	estimated 	to 	be 	approximately 	30 	percent
o f 	the 	total 	employed 	population 	of 	the 	area.
~ o t h i n g in 	the 	program 	prohibits 	or 	limits 	participating 	pro-
viders 	from contracting w i t h 	ne 	partixipating 	in 	the 	programs 	of
any 	other 	PPO, HMO, 	or 	othe'r 	third-party 	payer. 	Similarly, 	third-
party 	payers 	participating 	in 	the C o o p e r a t i n g 	Provi'der 	P r o g r a m
remain 	free 	to 	engage 	in 	other 	programs.
T h e 	proposed 	Cooperating 	Provi.der Program, 	in 	essence, 	w o u l d
be 	a 	form 	of 	vertical 	arrangement 	between 	individual 	sellers 	o f
services 	( c o o p e r a t i n g providers) 	and 	purchasers 	of 	services 	(third-
party 	payers, 	on 	behalf 	of 	their 	insureds 	or 	beneficiaries) 	f o r 	the
saie 	and 	purchase 	of 	health 	care 	services. 	HCW 	proposes 	to 	faeil-
itate 	these 	transactions 	b y 	performing 	certain 	functions m u c h 	like
an 	agent 	or 	broker. 	HC&iA 	is 	not 	itself 	a 	primary 	party 	to 	the
underiying 	transaction. 	Also, 	the C o o p e r a t i n g 	Provider 	P r o g r a m
involves 	no 	agreements 	among 	eitber 	competing 	providers 	or 	third-
party 	payers 	concerning 	any 	aspect 	of 	their 	involvement 	in 	the
program.
Based 	on 	the 	description 	of 	the Cooperating 	Provider 	P r o g r a m
outiined 	above 	and 	further 	detailed 	in 	your 	submissions, 	i t 	is 	t h e
C o m n i s s i o n l s o p i n i o n 	that 	operation 	of 	the 	program 	wouid 	not 	con-
stitute 	a 	horizontal 	or 	vertical 	price 	fixing 	arrangement 	or 	an
unlawfui 	joint 	sales 	agency 	arrangement. 	Nor 	does 	the C o o p e r a t i n g
Provider 	Program, 	as 	described, 	raise 	a 	colorable 	c l a i m 	oi 	boycott
or 	concerted 	r e f u s a l 	to 	deal 	under 	the 	antitrust 	laws. 	F i n a l i y ,

Irwin 	S . 	Smith, b1.D.
Page 	4
the program, 	as 	described, 	contains 	no 	suggestion 	of 	a 	s p e c i f i c .
intent 	to monopolize, 	nor 	does HCahA appear 	to be 	capable o f
acquiring, 	maintaining, 	or 	improperly 	using inonupoly 	power. 	i t
appears, 	moreover, 	that 	the Cooperating 	Provider 	Program proposed
bg 	is 	likely 	to be 	procompetitive, 	both 	by 	generating 	coma
petition 	between 	cooperating providers 	and 	other 	local 	providers
and 	by 	increasing 	competition 	a m n g 	third-party 	payers. 	It 	is
the comnission" 	opinion 	th4t 	this 	program would 	not 	violate 	t h e
-1Fedcral T r a d e 42 	i s s i o n 2 P t 	Qr any 	provision 	o f antitrust 	law
the C ~ m i s ~ i o n 	orqes .-
ission 	retains 	the 	right 	to 	reconsider 	the questions
involved, 	and 	to 	rescind 	or 	revoke 	its 	opinion with 	notice 	to 	t h e
requesting 	party 	in accordance w i t h 	Seetion 	1 . 3 ( b ) 	of 	the R u l e s
of Practice, 	if 	the 	implementation 	of 	the cooperating Provider
P r o g r a m 	results 	in 	anticompetitive 	effects, 	the 	purposes 	o f 	the
program 	no 	longer 	remain 	legitimate, 	or 	the public 	interest
dtherwise 	so 	requires. 	.
By 	direction 	of 	the C o m i s s i o n ,
SIGNED & MALEW
Emi1y.H. R o c k
Secretary
2.1 	T h i s Advisory 	Opinion, 	like 	all 	those 	the Comnission 	issues,
is 	limited 	to 	the 	proposed 	conduct 	described 	in 	the 	request
being 	considered. 	T h e r e f o r e , i t 	does 	not 	constitute 	approval
for 	actions 	that 	are 	different 	f r o m those 	described, 	or 	those
not 	specified, 	in 	the 	request. 	Nor 	does 	this 	Advisory 	Opinion
conclude 	or 	imply 	that 	to 	avoid 	illegality 	under 	the 	antitrust
iaws 	a PPO must 	be 	structured 	and 	operated 	in 	every 	respect 	like
HC;MAts 	Cooperating 	Provider 	Program.