Why Clinical Integration? Why Now?

Clinical integration is a natural outgrowth of the current market cycle, but also an exciting and pioneering step forward.

We are currently ending a 10-year market cycle that culminated in managed care and risk-based contracts. Neither of these is attractive to the insurer community any longer, and there is a shift toward fee-for-service contracts.

Demands on all sides

We all know that physicians are in a squeeze between:

• demands for lower costs (from all sides—government, consumers, insurers, employers)
• the call for ever-increasing quality of care
• public reporting and accountability
• decreasing reimbursements—hurting not only practicing physicians but our ability to recruit as well
• the coming wave of pay-for-performance programs

How do we address all of these issues at once?

Fee-for-service contracts pose contracting issues

Provider contracting networks (such as IPAs, PPOs, PHOs, etc.) that negotiate prices for their members without sharing risk or capitation may be considered to be engaging in “horizontal price-fixing agreements,” the most serious antitrust violation. The Federal Trade Commission and the Department of Justice have prosecuted more than 30 provider contracting networks over the past five years for such conduct.

Risk-based contracting allowed networks to negotiate without committing a “per se,” or automatic, violation of the law because members were “financially integrated,” and consumers benefited. In the absence of risk contracts, physicians wishing to negotiate as a group must be employed by the same entity or become clinically integrated. The alternatives to financial or clinical integration for independent providers are:

• Use a “messenger arrangement”
• Contract directly and individually with payors

A look at the alternatives

Employment seems to be 180 degrees away from the desire of most independent physicians, who want to retain control over their practices. Similar issues are involved in the creation of large medical groups owned by the physicians who are also employees.

In the “messenger model,” the network is allowed to carry or messenger contracts between the payors and the physicians. The “messenger” would not be allowed to discuss prices or contract terms with either party, which means there is no antitrust problem. Messenger arrangements are cumbersome to operate; there are few advantages; and there are numerous FTC challenges to them.

Contracting directly and individually with payors is likely to disadvantage most physicians as they lack the expertise, inclination, and time for those negotiations.

Clinical Integration as an option

The Federal Trade Commission and Department of Justice define Clinical Integration as:

“…the network implementing an active and ongoing program to evaluate and modify practice patterns by the network’s physician participants and create a high degree of interdependence and cooperation among the physicians to control costs and ensure quality.” (Source: DOJ and FTC, Statements of Antitrust Enforcement policy in Health Care, Statement 8)

Even if all the tests for Clinical Integration are met, networks are still not allowed to increase prices through aggregating market power. They can, however, seek higher prices from the market for a better, more attractive, differentiated product.