**Antitrust Law Consideration for Community Access Program
Participants**

Prepared for the Health Resources and Services Administration

*by:*

Feldesman, Tucker, Leifer, Fidell & Bank LLP

*with the assistance of:*

Powell, Goldstein, Frazer & Murphy LLP

October 30, 2001

This document has been prepared for HRSA by the law firms listed above.
The U.S. Department of Health and Human Services has not verified the
accuracy of data or analysis presented in the document. The opinions
expressed in this document are the views of the authors and do not
necessarily reflect the official position of the Health Resources and
Services Administration or the Department of Health and Human Services.
This document is designed to provide accurate and authoritative
information in regard to the subject matter covered. It is issued with
the understanding that the authors are not engaged in rendering legal or
other professional services. If legal advice or other expert assistance
is required, the services of a competent professional person should be
sought.

**I. INTRODUCTION AND EXECUTIVE SUMMARY**

The federal antitrust laws prohibit trade practices and arrangements
that unreasonably restrain trade or that create or attempt to create
monopolies.[^1] Their purpose is to promote competition and protect
consumers against competitors who engage in certain collective and
concerted conduct that results in excessive "market power" in "relevant
markets."[^2] Accordingly, the federal antitrust laws are designed to
both regulate and encourage competition.

In the health care industry, the federal antitrust laws encourage
competition among health care providers to promote health care services
of the highest quality and the best possible price. Competition ensures
that the cost of inpatient care is not unnecessarily inflated, that
pharmaceuticals and other medical supplies are accessible when needed
and that consumers are offered the latest in medical technology. If,
however, the industry's participants agree to fix price, collectively
negotiate contracts, and actively prevent others from entering the
market, they will quickly gain market power, driving up prices and
diminishing the quality of available health care goods and services.

Moreover, collective and concerted actions that violate antitrust laws
need not be intentional. Thus, for example, an agreement among a
community's primary care providers to delegate certain functions (such
as utilization review, case management or laboratory services) among
themselves in an effort to create substantial efficiencies and avoid
duplication may be viewed as an illegal market allocation if the
agreement results in any single provider assuming sole responsibility
for a particular function but fails to achieve the desired efficiencies.

By its very definition, the CAP program is designed to promote
collective and concerted actions by health care providers serving the
uninsured. The program assists applicants in the development and
operation of networks and collaborations that involve hospitals,
community health centers, local governments and other health care
providers. The program's objective is to increase the effectiveness and
capacity of the nation's health care safety net providers and thereby
provide expanded access to quality health care services for the
uninsured and underinsured in our nation's communities. These efforts
are designed to achieve health care delivery systems that offer a
seamless continuum of care to underserved populations and the
elimination of unnecessary and duplicative functions. However, the
structure of each CAP consortium and its activities should be carefully
reviewed to assure that in the process of achieving these benefits the
consortium and its activities do not give rise to antitrust concerns.

This issue brief provides an overview of the federal antitrust laws'
prohibitions, the standards employed by the federal government in
applying the federal antitrust laws to the collaborative activities of
health care providers, descriptions of some of the "safety zones" that
may be available to protect CAP collaborations from federal antitrust
challenges, and state action immunities that may apply to remove the
activities from a potential antitrust challenge.

When establishing and operating provider networks, or when sharing
financial, administrative or clinical functions with other providers,
CAP consortia and their participants should pay close attention to the
types of activities to be conducted and plan for an appropriate level of
integration and implementation of other safeguards to ensure that the
activities will not result in antitrust violations. Networks that are
structured in an appropriate manner "on paper" but that do not actually
implement that structure leave themselves open to potential exposure
under the antitrust laws. CAP consortia should consider seeking the
advice of qualified legal counsel to ensure that their arrangements do
not run afoul of antitrust laws.

# 

# II. AN OVERVIEW OF THE FEDERAL ANTITRUST LAWS

**A. The Federal Antitrust Laws**

In promoting competition, the federal antitrust laws seek to prohibit
trade practices and arrangements that unreasonably restrain trade
[or]{.underline} that create or attempt to create monopolies.

**1. The Sherman Act**

Section 1 of the Sherman Act prohibits any "contract, combination or
conspiracy," that unreasonably restrains interstate or foreign
commerce.[^3] For example, agreements among competitors to fix prices or
engage in a group boycott of a competitor are obvious examples of
collaborative activities that violate the law's prohibition. Competitor
activities are subject to criminal and/or civil prosecution under the
Sherman Act if the following key elements are present:

(a) "concerted action" of two or more parties,

(b) who have entered into an "agreement," and

(c) that is both designed to be and has the unlawful "effect of
    unreasonably restraining trade."

Section 2 of the Sherman Act makes it an offense to monopolize, attempt
to monopolize, or combine or conspire to monopolize any part of
interstate or foreign commerce.[^4] Violations of the Sherman Act are
punishable by imprisonment for up to three years and/or fines of up to
\$350,000 for individuals and \$10 million for corporations per
violation. An alternative provision of the law authorizes fines of up to
twice the gross gain or twice the gross loss if any person derives
pecuniary gain from the offense or if the offense results in pecuniary
loss to a person other than the defendant.[^5]

**2. The Clayton Act**

Section 2 of the Clayton Act prohibits discrimination in prices between
different purchasers in the sale of a commodity where the effect may be
substantially to lessen competition or tend to create a monopoly.[^6]
Section 3 of the Clayton Act prohibits exclusive dealing and tying
arrangements involving the sale of commodities, where the effect may be
to substantially lessen competition or tend to create a monopoly.[^7]
While these provisions govern the sale of commodities and may therefore
not be especially relevant to CAP participants, Section 7 of the Clayton
Act prohibits mergers, joint ventures, consolidations or acquisitions of
stock or assets where the effect may be to substantially lessen
competition or tend to create a monopoly.[^8]

The Clayton Act empowers any person "injured in his business or
property" by reason of a violation of the Sherman Act and/or Clayton Act
to sue for treble damages.[^9]

To recover damages, a plaintiff must demonstrate more than just injury
to himself, but injury to competition as a whole. In addition, the
Clayton Act authorizes a private party to obtain an injunction for
"threatened loss or damage" by a violation of the antitrust laws.[^10]

**B. Enforcement of the Federal Antitrust Laws**

The government agencies that enforce the antitrust laws, the United
States Department of Justice ("DOJ") and the Federal Trade Commission
("FTC"), have generally looked upon joint ventures in the health care
arena favorably, viewing them as pro-competitive. Antitrust concerns may
arise, however, when organizations that normally act as competitors
collaborate in a manner that is expressly prohibited under the federal
antitrust laws such as price fixing, market allocation or group
boycotting. To respond to industry concerns, the agencies have issued
various policy statements and guidelines that describe the principles
employed by the agencies in evaluating various types of health care
provider arrangements. The agencies also respond to requests for
additional guidance in the health care antitrust arena. The DOJ issues
such guidance in the form of business reviews letters, whereas the FTC
issues additional guidance in the form of advisory opinions.[^11]

1.  **Statements of Antitrust Enforcement Policy in Health Care
    Affiliations**

The agencies' joint Statements of Antitrust Enforcement Policy in Health
Care Affiliations ("Policy Statements") are of particular relevance to
health care providers. Originally issued in 1993 and most recently
revised in 1996, the Policy Statements address nine types of health care
transactions and include a number of "safety zones" that protect certain
health care provider transactions from antitrust enforcement
actions.[^12] Specifically, the Policy Statements contain guidelines
governing the following types of health care ventures:

-   hospital mergers

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-   hospital joint ventures involving high-technology or other expensive
    medical equipment

-   hospital joint ventures involving specialized clinical or other
    expensive health care services

-   providers' collective provision of non-fee-related information to
    purchasers of health care services\*

-   providers' collective provision of fee-related information to
    purchasers of health care services\*

-   provider participation in exchanges of price and cost information\*

-   joint purchasing arrangements among health care providers\*

-   physician network joint ventures\*

-   multiprovider networks

If the criteria of a particular safety zone are met, the parties will be
protected from antitrust prosecution notwithstanding the presence of
anti-competitive harm. Safety zones with particular relevance to CAP
participants, as indicated by the asterisk (\*), are discussed in
Section III.C of the issue brief, below.

An arrangement that does not fit precisely within the bounds of one of
the available safety zones will not necessarily be viewed as illegal
since analysis under the antitrust laws is inherently fact intensive. If
collaboration among providers is likely to produce significant
efficiencies for the benefit of consumers, the venture may still pass
antitrust muster provided that the resulting anti-competitive harms are
reasonably related and necessary to accomplish certain pro-competitive
benefits. To determine whether such integration violates the federal
antitrust laws, the enforcement agencies apply a fact-based "rule of
reason" analysis. Under the analysis, the anticompetitive effects of the
integration are balanced against its pro-competitive effects. If the
agencies determine that, on balance, the beneficial effects outweigh the
harmful effects on competition, no enforcement action will be taken. For
a more detailed discussion of the rule of reason analysis, see Section
C.2, below.

2.  **Antitrust Guidelines for Competitor Collaborations**

In addition, in April 2000, the FTC and DOJ finalized their Antitrust
Guidelines for Collaborations among Competitors ("Guidelines"), which
present the analytical framework that the agencies apply in assessing
the likely competitive effects of "competitor collaborations." The
Guidelines are consistent with the Policy Statements and apply to
competitor collaborations in all industries including the health care
sector. By issuing the Guidelines, the agencies sought to assist
collaborating businesses in assessing the likelihood of an antitrust
challenge and to promote pro-competitive business ventures. For purposes
of the Guidelines, competitor collaborations are defined as
collaborations that are generally of limited duration and that preserve
some form of competition among the parties. The Guidelines focus on
collaborations that involve one or more agreements between or among
competitors to engage in such business activities as research and
development, production, marketing and distribution, as well as
information sharing and various trade association activities. Because
mergers usually end competition between the merging parties, mergers as
well as competitive collaborations that eliminate all competition among
collaborators are not covered by the Guidelines.[^13]

The analysis employed by the DOJ and FTC in its review of antitrust
cases, and its review of competitor collaborations, is discussed in the
section below.

### III. ANALYSIS OF COLLABORATIVE ARRANGEMENTS UNDER ANTITRUST LAW

**A. The Per Se Illegal Standard**

The courts use two types of analysis to determine the lawfulness of an
arrangement among actual or potential competitors. Certain arrangements
are considered inherently or [per se]{.underline} "anti-competitive."
They include arrangements to fix price, group boycott and allocate
markets and certain other collusive behavior. As a result, no inquiry
into the arrangement's business purposes is made under the [per
se]{.underline} standard nor is any consideration given to the
arrangement's pro-competitive benefits or the overall effects of the
arrangement.

**B. The Rule of Reason Standard**

Other arrangements among competitors, such as mergers, consolidations,
joint ventures, agreements to exchange competitively sensitive
information and agreements to deal exclusively with a particular
supplier, are analyzed under the "rule of reason" to determine their
overall competitive effect. The rule of reason analysis requires a
careful application of the particular facts and circumstances to the law
to determine the lawfulness of a particular arrangement. Specifically,
the rule of reason assesses whether there are any anti-competitive
effects resulting from the arrangement and, if so, whether these are
reasonably related and necessary to achieve pro-competitive effects. If
so, the pro-competitive effects must outweigh the anti-competitive
effects.

The DOJ and FTC Guidelines set forth the analytic steps under the rule
of reason. The agencies first examine the nature of the agreement to
determine the agreement's underlying business purposes and any
anti-competitive harm that may result. If the nature of the agreement
and an absence of market power demonstrate an absence of
anti-competitive harm, no challenge will ensue. If, on the other hand,
the agencies determine that there is a potential for anti-competitive
harm and that there are no overriding benefits to offset such harm, the
agreement may be challenged without further analysis.

Where, however, an arrangement produces both a potential for
anti-competitive harms as well as pro-competitive benefits, the agencies
will determine that a further market analysis is warranted before making
a decision as to whether to challenge an agreement. In such cases, an
in-depth analysis is conducted including, for example, an analysis of
the relevant geographic and product markets, any market power exercised
by the parties in question and other market and non-market factors such
as entry and exclusivity.[^14] If, upon completion of the market
analysis, the agencies find that there is no potential for
anti-competitive harm, no further action is taken. If, however, the
market analysis indicates some anti-competitive harm, the agencies
analyze the agreement to determine whether it is reasonably necessary to
achieve verifiable pro-competitive benefits that offset the harm.

The Guidelines identify pro-competitive benefits as:

-   goods or services that are cheaper, more valuable to consumers, or
    brought faster to market

-   better use of existing assets or an increased incentive to make
    output-enhancing investments

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-   greater cost-effectiveness and efficiencies

The Guidelines attribute such benefits to competitor combinations of the
participants' different capabilities or resources, such as technical
expertise, or the attainment of scale or scope economies by combining
activities such as marketing or research.

In addition, the Guidelines identify anti-competitive harms as
competitor collaborations that increase the ability or incentive
profitably to raise prices or reduce output, quality, service or
innovation. Anti-competitive harms may result from agreements that limit
competitors' independent decisionmaking authority or that combine
competitors' control over (or financial interests in) production, key
assets or decisions regarding price, output or other competitively
sensitive variables. Arrangements that contemplate such practices as the
sharing and disclosure of competitively sensitive information may
facilitate explicit or tacit collusion and result in anti-competitive
harm.

**C. Relevant Safety Zones For CAP Participants**

As indicated above, the FTC and DOJ Policy Statements establish certain
antitrust safety zones for transactions involving health care providers
under which, absent extraordinary circumstances, activities conducted by
the providers will not be found to violate antitrust laws. Certain
safety zones permit financially and/or clinically integrated providers
acting to collectively negotiate contracts and share competitively
sensitive information, albeit within closely prescribed circumstances.
Other safety zones authorize non-integrated providers to engage in joint
activities with the assurance that their actions will not be subject to
an antitrust challenge. Bear in mind that an arrangement that does not
fit precisely within the bounds of one of the available safety zones
will not necessarily be viewed as illegal. Rather, the arrangement will
be evaluated under a rule of reason analysis.

1.  Antitrust Safety Zone for Integrated Providers

Included among the safety zones is one that is specific to physician
network joint ventures. A network of physicians that meets the criteria
of the physician network safety zone can negotiate and contract with
third parties as a single entity on behalf of its network providers and,
absent extraordinary circumstances, be assured that it is not in
violation of antitrust laws. Certain types of activities involving an
exchange as between potential or actual competitors of competitively
sensitive information are permissible if the safety zone's criteria are
met, including:

-   exchanging information related to current or future fees, costs,
    wages, salaries, benefits, credit terms, bids or negotiations with
    third party payors or purchasers, or other financial information,
    including the development of reporting systems that result in the
    exchange of such information

-   developing and implementing joint pricing strategies for payors and
    patients, including standard fee schedules for patient billing

-   discussing and coordinating strategic, marketing and promotional
    plans of network providers developed in connection with activities
    not limited to uninsured populations outside the scope of the
    network, [e.g.]{.underline}, information relating to current market
    shares

-   allocating services, markets or patients, including, but not limited
    to agreements to eliminate duplicative services, agreements to
    bilaterally refer patients to one another (unless in accordance with
    a provider's independent professional judgment), and the development
    of a patient tracking system if the system is results in the
    allocation of patients

-   jointly negotiating and contracting with third party payors,
    vendors, purchasers or providers or agreeing not to deal with
    certain payors, vendors, purchasers or providers

In order to fall within the safety zone, the members of the network must
share substantial financial risk ([i.e.]{.underline}, capitation
payments and fee withholds) and demonstrate other indicia of financial
integration ([e.g.]{.underline}, make substantial capital investments in
the collaboration, execute participating providers contract that
provides for capitation payments with risk pools, and/or engage in
coordinated activities/services that the individual providers could not
do by themselves). In addition, the network must not include more than
30% of primary care or specialty physicians in the relevant market if it
is a non-exclusive network, or if exclusive, not more than 20% of
primary care or specialty physicians in the relevant market.[^15]

In lieu of financial integration, a provider network [may be able
to]{.underline} demonstrate sufficient integration and thereby avail
itself of the protections afforded under the safety zone for integrated
provider networks if the network is both sufficiently clinically
integrated and non-exclusive. Indicia of clinical integration include:

-   mechanisms to monitor and control utilization of health care
    services to control costs and assure quality of care

-   purchase of information systems necessary to gather aggregate and
    individual data to measure performance of the group and individual
    providers against cost and quality benchmarks

-   monitoring of patient satisfaction with network providers

-   provision to payors of detailed reports on costs and quantity of the
    services delivered by participating providers, and on the
    collaboration's success in meeting its goals

-   employment of a medical director and/or support staff to perform the
    above functions and to coordinate patient care in specific cases

-   investment of significant time in the development of practice
    standards and protocols, and in actively monitoring the care
    provided through the network

-   remedial action against providers who fail to adhere to network
    standards and protocols, including practice modification, imposition
    of penalties and, if applicable, expulsion from the network

Increasingly, the FTC and DOJ have recognized the potential benefits
associated with clinical integration of health care providers. For
example, the FTC in an advisory opinion letter issued in July, 2000
considered the shared functions of a proposed network of pharmacies
providing a package of "patient care and other services" in connection
with the medical management of patients with chronic or long-term
illnesses.[^16] A level of financial integration, achieved through
allocation of 50% of charges into a risk pool, would be implemented to
support the proposed network functions. These included the development
and implementation of standardized protocols and programs and the
centralization of certain claims processing and administrative
functions. The agency concluded that it would not challenge the network
on antitrust grounds reasoning that the proposed services have the
potential to provide significant benefits to consumers and that the
price agreement among network members appears to be reasonably related
to achieving those benefits.

An agreement among health care providers that is limited to an exchange
of information concerning best practices or the development of shared
protocols, however, is unlikely to qualify for the antitrust safety zone
and may expose the participating providers to antitrust liability if the
activity results in increased prices for the providers' services. The
risk pool implemented by the pharmacy network described in the above FTC
advisory opinion creates a financial incentive for the network's
pharmacies to ensure the network's success and the likelihood of
obtaining the desired efficiencies. Absent further financial and/or
clinical integration by the collaborating providers, the incentive --
and the likelihood of substantial benefits to the consumer -- is
reduced.

We note that the agencies' Policy Statements also address multiprovider
networks. These types of networks include providers from various
different sectors and levels within the health care industry and, as a
result, the antitrust analysis of these networks contemplates both the
horizontal (provider vs. provider) and vertical impact (provider vs.
managed care plan) of the arrangement. The Policy Statements indicate
that the agencies apply the same review criteria that they apply to
physician networks. The Policy Statements, however, do not establish a
safety zone for multiprovider networks as they do for physician network
joint ventures. The policy statement on multiprovider networks explains
that the agencies do not have sufficient experience analyzing such
networks to articulate a safety zone.

2\. Antitrust Safety Zones for Providers Lacking Substantial Integration

The agencies' Policy Statements also include antitrust safety zones for
[non-integrated]{.underline} providers. These safety zones authorize
health care providers to engage in other types of collaborative
activities notwithstanding a lesser level of financial and/or clinical
integration provided that adequate safeguards are implemented and
competitively sensitive information is not exchanged. Examples of these
types of activities include:

-   the collecting and sharing of non-fee related information (such as
    medical and service-related data)

-   the collecting and sharing of historical fee-related data

-   participation in surveys of certain types of information (historical
    prices for health care and related services, historical wage and
    salary information)

-   joint purchasing programs relating to health care products or
    services

    a.  Antitrust Safety Zone for the Provision of Non-Fee-Related
        Information To Purchasers of Health Care Services

The agencies' Policy Statements for [non-integrated]{.underline}
providers include a safety zone that permits the collective provision of
[non]{.underline}-fee-related information by competing health care
providers to a purchaser. Absent extraordinary circumstances, the DOJ
and FTC will not challenge these activities if undertaken in compliance
with the safety zone's criteria. Examples covered in the agencies'
discussion of the safety zone include:

-   a medical society's collection of outcome data from its members
    about a particular procedure that members believe should be covered
    by a purchaser and the subsequent provision of the information to
    the purchaser

-   the development by providers of suggested practice parameters that
    also may provide useful information to patients, providers and
    purchasers

By creating a safety zone for the collective provision of
non-fee-related information, the agencies recognize that the provision
of underlying medical data that may improve purchasers' resolution of
issues relating to the mode, quality or efficiency of treatment is
unlikely to raise antitrust concerns. The Policy Statements make clear,
however, that any attempt by providers to coerce purchasers to follow
their recommendations, by implying or threatening a boycott or by
collectively refusing to deal with purchasers who object, would risk
antitrust challenge.

b.  Antitrust Safety Zone for the Collective Provision of Fee-Related
    Information to Purchasers of Health Care Services

The DOJ and FTC Policy Statements establish a further safety zone for
non-integrated providers that may be relevant to CAP participants. The
safety zone authorizes the collective provision of factual fee-related
information to purchasers of health care services to assist the
purchasers in developing reimbursement terms to be offered to providers
and otherwise be useful to purchasers. Providers may collect information
concerning fees (current or historical) or other aspects of
reimbursement, including capitation arrangements, risk-withholds and
all-inclusive fees, provided that they satisfy certain conditions
designed to ensure that an exchange of price or cost data is not used by
competing providers to coordinate provider prices or costs. To qualify
for the safety zone, the following conditions must be met:

-   the collection is managed by a third party ([e.g.]{.underline}, a
    purchaser, government agency, health care consultant, academic
    institution or trade association);

-   although current fee-related information may be provided to
    purchasers, information that is shared among or made available to
    competing providers furnishing the data must be more than three
    months old; and

-   for any information that is available to the providers furnishing
    data, there are at least five providers reporting data upon which
    each disseminated statistic is based, no individual provider's data
    may represent more than 25 percent on a weighted bases of that
    statistic, and any information disseminated must be sufficiently
    aggregated such that it would not allow recipients to identify the
    prices charged by any individual provider.

    a.  Antitrust Safety Zone for the Participation in Exchanges of
        Price and Cost Information

Recognizing that consumers will benefit if non-integrated providers are
permitted to use price and compensation surveys to price their services
more competitively and attract highly qualified personnel, the FTC and
DOJ established a safety zone for provider participation in written
surveys of price and cost information or of information concerning
wages, salaries and benefits notwithstanding the absence of financial
integration among the participating providers. The safety zone does not
require the providers to demonstrate financial or clinical integration;
however, to safeguard against potential collusive and other improper
practices, providers must meet the following conditions:

-   the survey is managed by a third-party ([e.g.]{.underline}, a
    purchaser, government agency, health care consultant, academic
    institution or trade association);

-   the information provided by survey participants is based on data
    more than three months old; and

-   there are at least five providers reporting data upon which each
    disseminated statistic is based, no individual provider's data
    represents more than 25 percent on a weighted basis of that
    statistic, and any information disseminated is sufficiently
    aggregated such that it would not allow recipients to identify the
    prices charged or compensation paid by any particular provider.

    a.  Antitrust Safety Zone Joint Purchasing Arrangements

The FTC and DOJ recognize that similar consumer benefits are derived
from joint purchasing arrangements as long as the arrangement does not
result in the effective exercise of market power, price fixing or the
reduction of competition. If structured appropriately, joint purchasing
arrangements involving non-integrated health care providers will permit
the providers to obtain volume discounts and reduce their transaction
costs to purchase goods and services such as computer or data processing
services and prescription drugs and other pharmaceutical products.
Absent extraordinary circumstances, the FTC and DOJ will not challenge a
joint purchasing arrangement if the following two conditions are met:

-   the purchases account for less than 35 percent of the total sales of
    the purchased product or service in the relevant market; and

-   the cost of the products and services purchased jointly accounts for
    less than 20 percent of the total revenues from all products or
    services sold by each competing participant in the joint purchasing
    arrangement.

3\. Additional Activities for Providers Lacking Substantial Integration

In addition to the specific activities described in the aforementioned
safety zones, provider collaborations lacking substantial financial
and/or clinical integration are often able to engage in certain conduct
to further and support the development and implementation of their
collaborative activities, provided that safeguards are in place to
prohibit the sharing of competitively sensitive information. Further,
all information shared, as well as activities performed, should be
narrowly tailored to apply solely to the scope of the collaboration.
Examples of such activities include:

-   developing and implementing strategic plans limited to specific
    activities undertaken by the network.

-   developing and implementing administrative and clinical practices
    and procedures.

-   developing protocols for shared services and personnel.

-   establishing shared information systems and clinical and
    administrative management systems.

-   establishing joint patient tracking systems.

**D. The Messenger Model**

Collaborating providers that are insufficiently integrated to qualify
for the safety zone applicable to physician network joint ventures
should use a "messenger model" arrangement when negotiating and
contracting with third parties to ensure that price fixing does not
occur. Under a messenger model, a third party serves as a
negotiator-intermediary between providers and purchasers. Although no
safety zone covers this type of arrangement, the DOJ and FTC have
recognized the use of messenger models and have stated that such
arrangements "when properly designed and administered, rarely present
substantial antitrust concerns."[^17] Both agencies have, however,
scrutinized messenger model arrangements that were not properly
administered.

Critical features of the messenger model include:

-   the messenger cannot divulge, and the messenger and the providers
    cannot share, price or other competitive terms and conditions of any
    contract negotiated for (or with) one provider to another provider
    unless done so in accordance with an antitrust safety zone;
    [however]{.underline}, the messenger can facilitate the drafting of
    minimum contracting terms and conditions ("contracting guidelines"),
    which are compiled and obtained [separately]{.underline} from -- and
    for -- each provider, and that, [individually]{.underline}, each
    provider is willing to accept and communicate the guidelines to
    payors.

-   the messenger cannot disseminate to the providers the views and
    intentions of other providers regarding a proposal(s) unless done so
    in accordance with an antitrust safety zone; [however]{.underline}
    the messenger can facilitate each provider's understanding of the
    proposed contract terms and conditions by providing objective
    information about such terms.

-   the messenger cannot collectively negotiate and contract for the
    providers and cannot coordinate their responses to a proposal(s);
    [however]{.underline} the messenger can communicate to each provider
    [individually]{.underline} the contract offers from payors.

-   providers [must]{.underline} make [independent]{.underline},
    [unilateral]{.underline} decisions regarding acceptance or rejection
    of contractual terms offered by a payor.

-   the messenger cannot bind an individual provider to a contract,
    [unless]{.underline} terms fall within a previously determined
    acceptable range, and the messenger has the explicit and specific
    authority to do so by that provider. The parties to the contract
    should be the [individual]{.underline} provider and the payor.

-   individual providers must remain free to conduct negotiations
    independent of the messenger ("non-exclusivity").

The FTC and DOJ have scrutinized networks that represent themselves as
messenger model arrangements to assess the networks' adherence to the
Guidelines. For example, in September 2000, the FTC successfully settled
antitrust charges against an Alaska physician association comprised of
physicians practicing in the Fairbanks area, and prohibited the network
from engaging in illegal concerted actions to fix prices and other
competitively significant terms of dealing with area health plans.
Despite the network's assertions of being a messenger model arrangement,
the network effectively acted as its members' exclusive bargaining agent
with payors by (1) inappropriately negotiating price and other contract
terms with payors based on a pre-determined fee schedule and a model
contract, (2) refusing to transmit to members offers that did not meet
the network's standards and terms, and (3) advising members that to
obtain better prices and other contractual terms, they should deal with
payors exclusively through the network. As a result of these actions,
consumers were subjected to higher prices and more limited choices
concerning physician services and new health plans were either blocked
or substantially delayed from entering the area market.

## State Law Considerations

> **1. State Action Immunity Doctrine**

Under the judicially established "state action immunity doctrine," state
agencies, municipalities, other types of local government and even
private parties may, under appropriate circumstances, be immune from
antitrust liability.[^18] In general, the state action immunity doctrine
provides that the aforementioned entities or individuals acting within
the scope and purview of a state statute or regulation may be immune
from antitrust liability for certain anti-competitive conduct. We note
that entities such as public hospitals have been considered
municipalities for purposes of the state action immunity doctrine.

The state action immunity doctrine sets forth a two-pronged legal test
that must be satisfied if antitrust immunity is to be granted.
[First]{.underline}, the substitution of competition must be "clearly
articulated and affirmatively expressed as state policy." The expression
of clear state policy should be based on specific, detailed legislative
authorization and, further, should reflect some affirmative expression
that the state has reasonably foreseen the potential anticompetitive
effects. [Second]{.underline}, the policy must be "actively supervised"
by the state. Under this second prong, state officials must have, and
must exercise, the power to review and regulate the particular acts of
private parties and disapprove anti-competitive acts that fail to accord
with state policy. Further, the state must exercise sufficient
independent judgment and control so that the anti-competitive conduct is
a product of deliberate state intervention.[^19]

Significantly, immunity is no longer applied to all anti-competitive
actions occurring under statutory authority. Over time, the courts have
established standards to limit the applicability of state action
immunity.

> **2. State Health Care Collaboration Statutes**

For health care providers developing and implementing collaborations, a
state "health care collaboration statute" may provide the clear state
policy and active supervision necessary to establish immunity from
antitrust liability. Approximately half of all states have enacted such
legislation to encourage voluntary cooperative agreements among
physicians, hospitals and other health care providers. These state
health care collaboration statutes are intended to improve both the
quality of, and access to, health care services, while achieving cost
efficiencies in the delivery of these services. Most of these state
immunity statutes permit hospitals, physicians, and other health care
providers to enter into joint venture or merger agreements if these
agreements will result in lower health care costs in the community.

Procedurally, these statutes contemplate significant government
involvement in reviewing and monitoring the proposed collaborative
arrangement. If the arrangement is approved, the parties to the
arrangement are granted state action immunity for conduct that is
otherwise regarded as potentially violative of state and/or federal
antitrust laws. CAP consortia may wish to carefully consider the
requirements and potential protections afforded under a specific state
health care collaboration statute and whether it makes sense for the
consortium to avail itself of the process.

# IV. CONCLUSION

This issue brief provides an overview of the federal antitrust laws and
some of the considerations that should be given by CAP consortia and
their participants as they implement their CAP projects. Depending on
their specific plans, CAP consortia may wish to consult with legal
counsel to assess their compliance with both federal and state antitrust
laws. If structured appropriately or with the appropriate safeguards in
place, CAP consortia may engage in a variety of activities that will
benefit the uninsured without substantial risk of an antitrust
challenge.

[^1]: [See generally]{.underline} the Sherman Act, 15 U.S.C. §§ 1-7, and
    the Clayton Act, 15 U.S.C. §§ 12-27. State antitrust laws generally
    mirror these federal statutes. However, the laws of the state in
    which the CAP consortium conducts its business should be researched
    to determine what, if any, different (and possibly more stringent)
    requirements exist.

[^2]: Market power takes into account both product market,
    [i.e.]{.underline}, the services offered, and geographic market,
    [i.e.]{.underline}, the service area.

[^3]: 15 U.S.C. § 1.

[^4]: 15 U.S.C. § 2.

[^5]: 18 U.S.C. § 3571(d).

[^6]: 15 U.S.C. § 13.

[^7]: 15 U.S.C. § 14.

[^8]: 15 U.S.C. § 18.

[^9]: 15 U.S.C. § 15.

[^10]: 15 U.S.C. § 26.

[^11]: Business Review Letters issued by the DOJ may be found on the
    agency's webpage at
    <http://www.usdoj.gov/atr/public/busreview/letters.htm>. FTC health
    care antitrust advisory opinions are posted on the FTC's webpage at
    [http://www.ftc.gov/bc/advisory.htm](http://www.ftc.gov/bc/.htm).

[^12]: The Policy Statements are posted on the FTC's website at
    <http://www.ftc.gov/reports/hlth3s.htm>.

[^13]: Mergers and competitive collaborations that eliminate all
    competition are analyzed pursuant to the agencies' Horizontal Merger
    Guidelines. The Antitrust Guidelines for Collaborations Among
    Competitors and other guidelines issued by the FTC and the DOJ can
    be accessed on the Internet at <http://www.ftc.gov/bc/guidelin.htm>.

[^14]: One issue that may present problems for CAP participants,
    particularly those located in rural areas, is the definition of the
    geographic market. In past FTC and DOJ reviews, the crucial issue
    has been the definition of the geographic market relevant to the
    entities entering into a joint agreement. If the agencies narrowly
    define the geographic market, the affiliating entities may be viewed
    as exercising dominant market power in violation of the federal
    antitrust laws. On the other hand, if the agencies broadly define
    the geographic market, other competitors will be considered in the
    antitrust analysis.

[^15]: In addition to satisfying one of the criteria of the integrated
    provider network safety zone, compliance with the applicable
    proportion of physicians can help to ensure that the network does
    not amass sufficient market power (and engage in certain actions)
    that can be viewed as an attempt to monopolize the relevant market
    or an agreement to restrain competition. Although monopolization (or
    attempted monopolization) is generally aimed at conduct by a single
    entity, two or more entities possessing a specific intent to
    monopolize and taking overt actions towards that goal can be viewed
    as conspiring to monopolize.

[^16]: Federal Trade Commission, Bureau of Competition, Advisory Opinion
    to Paul E. Levenson (July 27, 2000).

[^17]: [See]{.underline} Statements of Antitrust Enforcement Policy in
    Health Care, Statement 9 (Multiprovider Networks).

[^18]: Although the actions of the federal government and of state
    governments are generally immune from federal antitrust prosecution,
    state agencies, cities and local governments are not automatically
    immune.

[^19]: State agencies, municipalities and other local government need
    only satisfy the first prong to be granted immunity under federal
    antitrust law.