Increasing the marketability and recognition of provider network joint ventures - Group Practice Management

Healthcare Financial Management, August, 1998 by Sally J. Sjobeck

Physicians have been developing provider network joint ventures to market their services jointly to managed care plans, employers, and other purchasers. Over the past few years, external market factors have produced a growing impact on these joint ventures. These external market factors include the Federal government's revised antitrust guidelines, National Committee for Quality Assurance activities, and state and Federal consumer protection laws.

Simply responding to these forces may not increase a provider network's marketability unless the network can demonstrate its value in the terms and measurements accepted by the consumer, managed care plans, and provider networks. By doing so, a provider network can not only increase its marketability, but also increase its recognition in the market, improve its competitive advantage, and enhance its return on investment.

Provider network joint ventures are ventures or affiliations among providers to jointly market their healthcare services to and contract with managed care plans, employers, and other purchasers. Provider network joint ventures can include single or multispecialty entities (eg, IPAs, IPOs), multiprovider entities (eg, PHOs, PSOs, integrated delivery systems), or a combination of these. These entities vary in structure, composition, and operational focus. Providers in some networks are competitors, while providers in others offer complementary services.

Over the past three years, provider network joint ventures have been significantly affected by external market factors, such as the Federal government's revised antitrust guidelines, the National Committee for Quality Assurance (NCQA) accreditation and certification programs for managed care and provider organizations, the Health Plan Employer Data and Information Set (HEDIS), and state and Federal consumer protection laws. By positioning themselves strategically in the market, provider networks can enhance their marketability and increase their return on investment.

Revised Antitrust Guidelines

In 1996, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) released revised antitrust guidelines for physician network joint ventures a and multiprovider networks,(b) allowing provider network joint ventures a means to negotiate fee-for-service arrangements directly with payers without using the clumsy and time-intensive messenger model. Before the revised antitrust guidelines were issued, the agencies required provider network joint ventures to share in substantial risk with payers as they felt this to be the ultimate incentive for the network providers to achieve integration by actively cooperating to control costs and improve the quality of services provided.

Under the prior guidelines, a provider network joint venture could safely enter into a contract with payers to provide healthcare services if the services were to be provided on a capitated basis, if the provider network developed and enforced significant financial incentives in the form of substantial withholds or similar arrangements to ensure that the network's predetermined cost-containment goals were met, and/or if the provider network used the messenger model approach for fee-for-service arrangements. In addition, the provider network could not restrict or hinder competition within the market.

Before the fall of 1995, many provider networks entering into fee-for-service arrangements with payers were using a modified messenger model, by which the network appointed an agent to establish a network fee schedule, negotiate with payers on behalf of the network entity, and contractually bind the network providers to arrangements meeting or exceeding the predetermined network fee schedule.

In the fall of 1995, the FTC made it clear through a Connecticut legal case that this type of collective negotiation by providers was viewed as a potential source of price fixing and group boycotts, both of which were per se illegal under antitrust laws.

Under the FTC's definition of a messenger model, each network provider must make a separate and independent decision about each proposed offer from a payer, and the agent must be just that - a messenger. According to the FTC, the messenger may solicit offers from payers for services performed by network providers, convey offers from payers to individual network providers, give network providers objective information about proposed payer contract terms (which may include comparisons with other payer proposals), or convey acceptances, rejections, or counter-offers from individual providers in response to a payer's offer.

The messenger may not negotiate collectively on behalf of network providers, communicate to providers the messenger's own views regarding payer proposals or the views of other providers, tell network providers that a payer has refused to negotiate or clarify contract terms, or refuse to convey bona fide offers from payers. In other words, under the FTC's definition, the messenger could no longer leverage the collective-bargaining power of a network's providers to gain greater concessions from payers.