The Federal Trade Commission and the Department of Justice (“the Agencies”) first discussed “clinical 1

integration” among health care providers in their joint Statements of Antitrust Enforcement Policy in Health Care

(August 1996), 4 Trade Reg. Rep. (CCH) ¶ 13,153 (hereinafter referred to as “Health Care Statements”), available at

http://www.ftc.gov/bc/healthcare/industryguide/policy/index.htm. See also Improving Health Care: A Dose of

Competition, A Report by the Federal Trade Commission and the Department of Justice (July 2004) (available at

http://www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf ) at Ch. 2, pp. 36-41.

UNITED STATES OF AMERICA

FEDERAL TRADE COMMISSION

WASHINGTON, D.C. 20580

Bureau of Competition

 Health Care Division

April 13, 2009

Christi J. Braun, Esquire

Ober, Kaler, Grimes & Shriver

1401 H Street, N.W., Suite 500

Washington, D.C. 20005-3324

Re: TriState Health Partners, Inc. Advisory Opinion 

Dear Ms. Braun:

This letter responds to your request for an advisory opinion on behalf of TriState Health

Partners, Inc., a physician-hospital organization based in Hagerstown, Maryland. TriState

proposes to “clinically integrate” its members’ provision of health care services, and to contract

jointly with health plans and other payers on a fee-for-service basis on behalf of its members to

provide services to plan beneficiaries.1

As is discussed in detail below, it appears that, if implemented as you have described, TriState’s

proposed program would be a bona fide effort to create a legitimate joint venture among its

physician and hospital participants that has the potential to achieve significant efficiencies in the

provision of medical and other health care services that could benefit consumers. After

evaluating the proposal, we have concluded that, if implemented as you have described, we

would not recommend that the Commission challenge the program. This opinion rests on three

central conclusions:

TriState’s proposed program, while still in the early stages of development in some

respects, appears to have the potential to create substantial integration among its

participants, with the potential to produce significant efficiencies, including both

improved quality and more cost-effective care. 

Joint contracting with payers on behalf of its competing physician members appears to be

subordinate and reasonably related to TriState’s plan to integrate its members’ provision

of services to deliver coordinated care by a group of providers committed to the program,
Letter to Christi J. Braun

April 13, 2009

Page 2

 This advisory opinion letter is based on the information that you have provided to us on behalf of TriState,

2

plus some additional information provided by other parties. We have not conducted an independent investigation to

confirm, or supplement, the information that has been provided to us.

 TriState is governed by a board of directors that includes five representatives of its hospital member, and eight 3

physician member representatives, including four primary care physicians, two surgeons, and two medical

specialists, one of whom must be a hospital-based practitioner. 

 Under TriState’s bylaws, an act to be taken by the board requires that each class of board members have a

4

quorum (i.e., a majority of the board members representing that class of TriState members) present, and requires

approval by a majority of those present for each class. TriState’s operations are managed by an administrative staff

of eight. 

 TriState’s member physicians include primary care physicians (identified as including pediatricians, family 5

practitioners, general practitioners, and internists, excluding those practicing in internal medicine sub-specialties),

specialty care physicians, hospital-based physicians, and oral surgeons, all of whom are licensed to practice in

Maryland, as well as medical group practices whose individual physician members meet that requirement. 

(continued...)

and reasonably necessary to effectively implement the proposed program and achieve its

potential efficiency benefits. Accordingly, TriState’s collective negotiation of contracts

with payers in connection with the proposed program, including the prices to be paid for

the services of the physician participants, should be evaluated under the antitrust rule of

reason. 

While TriState’s physician members as a group, and TriState’s hospital member, may

have market power in their respective markets, it appears that the program as described is

unlikely to enable them to exercise or increase any such power. Critical to this

determination is the representation that physician members and the hospital member will

remain available to contract individually outside the proposed program. If participants

were to operate in ways different from what TriState has proposed, TriState’s program

could raise serious competitive concerns.

As is customary with FTC advisory opinions, our conclusions are based on your representations

and the information that you have provided. As a prospective assessment based on limited 2

information, the advisory opinion is necessarily tentative and expresses the staff’s current

enforcement views, which likely would change if implementation of the proposed program

proved to have anticompetitive effects. 

I. Description of TriState and Its Current Operations

TriState is a physician-hospital organization (“PHO”) based in Hagerstown, Maryland, whose

more than 200 physician members and one hospital member are located in Washington County,

Maryland. TriState is organized as a Maryland non-stock membership organization, and was

incorporated in 1995. It has two classes of membership : Class I members are physicians; and 3 4 5
Letter to Christi J. Braun

April 13, 2009

Page 3

 (...continued) 5

Approximately 40 of these Class I physician members are employees of TriState’s Class II member – Washington

County Hospital Association – or one of its subsidiaries. These employed physicians practice in eight specialty

areas. The remainder of TriState’s Class I members are independently practicing physicians practicing in a variety

of specialty areas. Currently, TriState also has approximately 70 non-members, including physicians, nurse

midwives, and clinical social workers, with whom it contracts for the provision of health care services.

 Washington County Hospital Association operates the 292 licensed acute care bed Washington County 6

Hospital, which “offers a full range of adult and pediatric inpatient and outpatient services including intensive and

progressive care units, a family birthing center, mental health services, cancer therapy, surgical care, cardiac

catherization, physical and occupational rehabilitation, and diagnostic imaging.” The hospital’s licensed beds

include 218 medical/surgical, 18 obstetric, 10 pediatric, 18 psychiatric, and 28 acute rehabilitation beds, and the

facility is designated by the State of Maryland as a Level III Trauma Center. Washington County Hospital

Association also operates a variety of related diagnostic, treatment, and support facilities and services covering

virtually every area of medical service need, including inpatient, outpatient, and home-based services. Washington

County Hospital Association also owns a minority interest in Maryland Physicians Care, a Medicaid HMO with

approximately 90,000 members in Maryland, about 9,000 of whom are located in Washington County. Washington

County Hospital Association’s parent organization, Washington County Health System, Inc., also owns Antietam

Health Services, a for-profit subsidiary that operates or joint ventures in a variety of business enterprises related to

the provision of outpatient health care services, such as diagnostic imaging, outpatient surgery, endoscopy, medical

transport, medical supplies, and management services. 

 Specifically, you have identified Washington and Frederick counties in Maryland, Franklin and Fulton

7

counties in Pennsylvania, and Morgan, Jefferson, and Berkeley counties in West Virginia as the areas served by

Washington County Hospital and TriState.

 You describe InforMed as “an Annapolis, Maryland health-care consulting and information technology

8

company that provides third party administrator (‘TPA’) services, medical management, health information

reporting, health information technology, and a regional network of physicians, hospitals, and ancillary providers.” 

 You state that “TriState physicians deal directly with InforMed on any issues related to fees or payment of 9

(continued...)

the sole Class II member is Washington County Hospital Association, a non-profit corporation

that operates Washington County Hospital and which, in turn, is a member of the Washington

County Health System, Inc., also a non-profit corporation. TriState’s physician members

6

provide medical services to patients located in western Maryland, southern Pennsylvania, and

northern West Virginia, although you state that their primary service area essentially is 7

Washington County, Maryland.

TriState began as a risk-sharing joint venture to enter into capitation contracts with payers. It,

however, offered such risk-sharing arrangements for only one year. Since 1998, TriState and its

physicians have offered their services through InforMed, L.L.C. TriState members who wish to 8

participate in the InforMed provider network, Community Health Partners, each separately and

individually agree to accept InforMed’s fee-for-service reimbursement rates, and sign

participation agreements with TriState evidencing their agreement to participate in InforMed’s

network through TriState. Under this arrangement, TriState has contracted with InforMed for 9
Letter to Christi J. Braun

April 13, 2009

Page 4

 (...continued) 9

claims. When fee schedule modifications are made, practitioners are free to accept, reject, or negotiate

modifications with InforMed directly. TriState is not involved in these discussions.” We have not reviewed this

aspect of TriState’s current operations, and offer no opinion regarding TriState’s or its physician members’ current

activities involving InforMed.

 Under the proposed program, however, utilization management will be under the supervision of physicians,

10

rather than the TriState staff, and be done by the Quality Assurance/Utilization Management Committee and the

Quality Improvement Committee. 

 TriState’s contracted non-physician providers include four nurse-midwives employed by Washington County 11

Hospital Association, and fifteen clinical social workers, who are not eligible to be Class I members of TriState.

 You state that TriState’s primary service area, which includes and extends slightly beyond Washington

12

County, Maryland, has a population of about 145,000. TriState’s secondary service area, which includes parts of

(continued...)

TriState’s providers to participate in the Community Health Partners network, and for TriState to

provide certain administrative services for InforMed, including physician credentialing, network

management, clinical oversight, and utilization review. TriState also has agreed to obtain certain

information technology services from InforMed, including “management of TriState’s claims

information database, design and support of an interactive website, and internet-based software

for eligibility verification and medical referrals.”

TriState currently sells an employee wellness program and provides medical management

services, including case management, disease management, and pharmacy management services. 

These programs are operated primarily by TriState’s administrative staff, and are sold separately

from the services of TriState’s physicians. The proposed program will include these services,10

along with the various components that directly involve the provision of services by TriState’s

physicians.

II. The Current Market Environment in Which TriState Operates

You describe TriState as currently having 212 member physicians, including about 40 member

physicians employed by Washington County Hospital, itself also a TriState member, with the 

remaining 172 physician members being privately practicing physicians in 78 separate practices. 

You also note that there are about 50 additional “contracted” physicians and 19 contracted nonphysician health care providers who, while not formally members of TriState, nevertheless

currently provide services to persons covered under TriState’s existing contracts through

InforMed. Finally, you state that Washington County Hospital – the only hospital in the county 11

– has a medical staff of 319 physicians. It therefore appears that TriState physicians represent a

very substantial majority of the physicians practicing at the hospital and in Washington County,

which you identify as both TriState’s and the hospital’s primary service area; that is, the area

from which the hospital draws more than 80 percent of its admissions. 

12
Letter to Christi J. Braun

April 13, 2009

Page 5

 (...continued) 12

Pennsylvania and West Virginia, as well as Frederick County, Maryland, has a population approaching 350,000. 

 InforMed provides third-party administrator services, such as claims processing, to the contracting employers,

13

and offers utilization and medical management services to employers that want those services. 

 The Washington County Health System, Inc., employee benefit plan covers about 5,000 lives. The two other 14

self-insured employer programs that TriState and its physician members serve through InforMed together cover

about 650 lives.

A. Alternatives to TriState or Its Members in TriState’s Service Area

1. Provision of Medical Services by TriState

Physicians Other Than Through TriState 

TriState physicians provide their professional medical services through a variety of

arrangements. TriState physicians who participate in InforMed’s Community Health Partners

network provide their services to persons covered under contracts that InforMed has entered into

with self-insured employers in Washington County. InforMed contracts with self-insured

employers to offer access to its provider network, which includes physician and hospital

providers. InforMed currently has contracts with three self-insured employers in the area,

13

covering a total of about 5,650 lives. The largest InforMed contract for which TriState provides

medical services is with the employee benefits plan for the Washington County Health System,

Inc., the parent organization of TriState’s sole Class II member, the Washington County Hospital

Association.14

Besides offering their medical services through InforMed’s provider network, you state that

TriState physicians also participate in a variety of programs involving other payers. You

identify various government programs and several commercial payers operating in TriState’s

service area. You state that TriState member physicians participate in these payers’ programs

through individual contracts entered into between the physicians and each payer and, while you

provide no specific statistics in this regard, you state that TriState’s members “contract directly

with most payers.”

2. Other Providers and Networks in TriState’s Service Area

TriState appears to include a substantial majority of the physicians practicing in Washington

County, TriState’s primary service area. And, as you acknowledge,“[t]here are no other IPAs or

PHOs other than TriState operating within Washington County.”

You also state, however, that TriState physicians represent a considerably smaller percentage of

physicians within TriState’s (and Washington County Hospital’s) much broader secondary
Letter to Christi J. Braun

April 13, 2009

Page 6

 You note that there are about 1,200 physicians in TriState’s secondary service area, of which TriState 15

physicians represent only about 16 percent. You have not, however, specified what percentage of physicians in

TriState’s primary service area – essentially Washington County, Maryland – TriState’s physicians represent.

 You describe Waynesboro Hospital as “a 62-bed hospital . . . (about 20 minutes north of Hagerstown),” and 16

identify “the 232-bed Chambersburg Hospital . . . [as] located about 30 minutes from Hagerstown.”

 You describe City Hospital as “a 144-bed hospital . . . [located] [t]hirty minutes to the south [of 17

Hagerstown].”

 You describe Frederick Memorial Hospital as “a 253-bed hospital located about 30 minutes east of 18

Hagerstown.” You state that “Frederick County’s only physician contracting organization ceased operations on

December 31, 2006, and most of its former members now contract directly with payers.”

service area, which accounts for an additional 14.5 percent of hospital admissions. Within this 15

broader service area, you identify three other health systems and two related provider networks. 

These include Summit Health, with hospitals in Waynesboro and Chambersburg, Pennsylvania,

and the Cumberland Valley Health Network – a PHO “aligned with Summit Health;” City 16

Hospital in Martinsburg, West Virginia, and the Eastern Panhandle Integrated Delivery System,

a “provider-sponsored, vertical arrangement of physicians and hospitals serving nine counties in

eastern West Virginia,” through which “many of . . . [City Hospital’s] medical staff members

contract with payers;” and Frederick Memorial Hospital in Frederick, Maryland, which you 17

state no longer has a contracting physician network dealing with payers.

18

B. Payers Operating in TriState’s Service Area

In addition to InforMed’s Community Health Partners network, through which TriState

physicians provide services under its self-insured employer contracts, you identify a variety of

third-party payers and programs that operate in TriState’s combined primary and secondary

service areas. Government payer programs include Medicare, Medicaid, and Tricare, which you

estimate together cover approximately 48 percent of all patients in the area, with worker’s

compensation covering slightly more than one percent of area patients. About four and a half

percent of patients are identified as self-paying, not covered by any third-party payer program. 

The remaining roughly 46 percent of area patients are covered by non-governmental health

plans. The largest commercial payers in the area are CareFirst Blue Cross Blue Shield, and

United Health Care/MAMSI, which together cover almost 71 percent of those with private

coverage. In addition, Aetna and Cigna do business in the area. While you did not provide

statistics specifically addressing payer market shares in the health system’s and TriState’s

smaller primary service area, you state that TriState “has no reason to believe . . . that the

statistics would be different if it looked only at patients residing in Washington County,

Maryland, which is roughly its primary service area.”
Letter to Christi J. Braun

April 13, 2009

Page 7

 In contrast to TriState’s current contracts with self-insured employers through InforMed, under TriState’s 19

proposed program, InforMed will no longer serve as the third-party administrator for self-insured employers. 

InforMed will, however, continue to serve as the data warehouse, software developer, and technical vendor for

TriState.

III. TriState’s Proposed Program

A. Purpose and Description of the Proposed Program

TriState now proposes to develop and implement a program through a “multi-provider network

joint venture that will integrate its members clinically as described in Statements 8 and 9 [of the

joint FTC and Department of Justice Health Care Statements].” Under the proposed program,

TriState’s members would provide medical and other health care services, including hospital

services, to persons covered under health benefits programs offered by self-insured employers

and other payers in TriState’s service area. TriState identifies three main objectives for its

proposed program: (1) to “facilitate and assure cooperative interaction and collaboration among

TriState’s member physicians” so as to “align the efforts of the physicians to improve their

patients’ health and their delivery of services, resulting in the right care being rendered in the

right setting at the right time;” (2) to “engage every TriState stakeholder – physicians, case

managers, administrators, payers, and patients – in a cohesive and comprehensive program of

care management,” that “should result in identifiable quality improvements for patients and

significant financial benefits for payers;” and (3) to allow TriState to offer payers “an integrated

set of services . . . not previously available in the market,” which “will be desirable to selfinsured employers looking to control their rising cost of providing health care coverage to

employees,” and “will also offer a competitive advantage to health plans and other payers

seeking to distinguish their products on the basis of quality or quality-adjusted cost.”19

TriState broadly describes itself and its proposed program as

offer[ing] payers a network of primary care and specialist physicians whose

services will be integrated through a formal and stringent medical management

program that includes protocol development and implementation, performance

reporting, procedures for corrective action when necessary, and aggressive

management of high-cost, high-risk patients. The program will offer payers a

network of coordinated services from physicians committed to improving

outcomes by working together to achieve quality improvements not possible by

working independently. TriState’s physicians will actively collaborate in the

development of all facets of the program, ensuring the cooperative delivery of

high-quality, cost-effective care.
Letter to Christi J. Braun

April 13, 2009

Page 8

 This letter broadly summarizes our understanding of various major aspects of the proposed program whose

20

components are described in greater detail in the materials you have submitted.

 You state that “[t]he main technology piece is InforMed’s virtual electronic health record, commonly referred 21

to by TriState as the Clinical Claims Chart (‘Chart’). Incorporated into the chart are Ingenix’s Symmetry family of

products – Episode Treatment Groups (‘ETGs’), Episode Risk Groups (‘ERGs’), and Evidence Based Medicine

Connect (‘EBM Connect’).” Episode Treatment Groups will collect data regarding claims and medical encounters

or related services (e.g., pharmacy), and organize the data into episodes of care (similar to Medicare’s diagnosisrelated groups), which can be used for provider profiling, utilization management, clinical benchmarking, and

disease management. Episode Risk Groups can be used to predict health risk and identify high-risk patients in

various categories. Evidence Based Medicine Connect focuses on several important preventative screening

procedures and 50 costly medical conditions for which there is strong evidence supporting documented guidelines. 

Evidence Based Medicine Connect allows assessment of both provider and patient compliance with certain

guidelines and preventative screenings, flags non-compliers, and allows the plan to target interventions, such as

disease management, medication adherence, patient safety, and care patterns. 

 As of mid-July 2008, you reported that 18 clinical practice guidelines had been approved by TriState’s Board 22

of Directors, and that 30 others were in various stages of development and review. The functions of developing and

monitoring compliance with clinical guidelines, both individual and for the entire program, are performed by

TriState’s Quality Improvement Committee, with involvement of multiple ad hoc committees of specialists in the

areas to which the guidelines apply. TriState’s stated goal is to have “at least 80 percent of the medical conditions

comprising at least 80 percent of the cost of care in the community, covered by at least one clinical guideline.”

 You note that typically about five percent of health plan beneficiaries account for 60 percent of claims

23

expenses, and that 40 percent of beneficiaries file no claims in a given year, supporting the view that focusing on the

treatment of the relatively few high-cost patients may be the most effective way to achieve program cost savings. 

More specifically, you identify a variety of activities that TriState plans to undertake or expand

from its current activities, as part of its proposed program. Central to the proposed program is 20

TriState’s plan to implement a web-based health information technology system that will help

identify “high-risk and high-cost patients,” and “will facilitate the exchange of patients’

treatment and medical management information” in order to “more aggressively manage . . .

[TriState’s] patients’ care than . . . [the providers] could achieve working independently.”21

TriState believes that this “aggressive care management should result in identifiable quality

improvements for patients and significant financial benefits for payers.”

TriState is in the process of developing clinical practice guidelines, and will monitor physicians’

adherence to them, as well as more broadly seeking means of improving clinical efficiency

through other changes in the program’s policies and procedures. TriState will use InforMed’s 22

software to review episodes of care; i.e., “all of the medical care and services a patient receives

from the onset of an illness or disease through final treatment,” to determine where performance

improvement will have the greatest financial and quality benefits. This information will be 23

used to review and, as appropriate, modify specific clinical guidelines or “care protocols” used

by TriState in the proposed program. The Quality Improvement Committee and TriState staff

will seek to identify instances of both overutilization and underutilization of services, and work

with physicians to address these issues. 
Letter to Christi J. Braun

April 13, 2009

Page 9

 The initial period for current non-members to join TriState is 60 days, after which there will be an annual 30- 24

(continued...)

TriState also will develop, implement, and oversee policies and procedures related to the

program’s utilization management, case management, and disease management activities. As

noted previously, TriState currently offers and sells medical management services, including

case management, disease management, and pharmacy management programs, as well as

employee wellness programs, which are provided by TriState’s administrative staff. These

services also will be part of TriState’s proposed program. TriState will also continue to offer

these services separately from its proposed program for those who are interested only in

purchasing these specific services. However, when they are provided as part of the proposed

program, these services will be under the direction of the physicians on the Quality

Assurance/Utilization Management Committee and the Quality Improvement Committee, rather

than just the TriState staff, and will be coordinated with the program’s protocol development and

implementation, quality monitoring, and patient management services. 

As part of the proposed program, TriState will monitor achievement of physician performance

targets, using peer, regional, and national benchmarks, and make recommendations for both

individual and group performance improvement. Individual physicians’ performance will be the

subject of “report cards” and peer counseling and educational efforts, as needed, with eventual

discipline and even expulsion from the program, if necessary, for those who fail or refuse to

conform their practices to the established program parameters. TriState’s stated goal, however,

at least initially, is to “move the mean” in terms of the performance of its participants, rather

than to winnow performance “outliers” from the program. Specific details of how TriState’s

performance measurement and evaluation processes will operate, both for individual TriState

physicians and for the group as a whole, were not provided. You noted that TriState “is in the

very early stages of determining which metrics initially will be measured, how they will be

measured, and how this will be communicated to the membership.”

B. Participants’ Obligations and Commitments Under the Proposed Program

1. Membership and Financial Investment in TriState

While most of the physicians who provide their professional services under TriState’s current

contracts already are Class I members of TriState, a substantial number of physicians and other

health care providers have been non-members who operated under “contractor” arrangements to

provide services under TriState’s payer contracts. In order to assure the necessary commitment

to the proposed program and its requirements, you state that TriState is eliminating this form of

participation status. Physicians who wish to participate in the proposed program will be required

to be or become Class I members of TriState. After an initial, time-limited, opportunity to join

TriState, physicians who subsequently wish to become members will be limited in their

opportunities to do so. For a multi-physician group practice to participate in the proposed 24
Letter to Christi J. Braun

April 13, 2009

Page 10

 (...continued) 24

day open enrollment period for physicians who initially declined enrollment to join. Exceptions to this limitation on

new members also will be made for physicians needed in “must-have” or limited access specialties and for

physicians new to the community who join existing practices that already are members of TriState. You state that

“[m]oving forward . . . [TriState] intends to be much more selective in allowing new physicians to join,” although it

appears that the substantial majority of physicians practicing in TriState’s primary service area already are, or after

the initial enrollment period will be, members of TriState.

 Apparently physicians and other health care providers who are not TriState members nevertheless may be 25

allowed to provide services to patients covered under TriState’s program contracts with self-insured employers or

other payers if the employer or payer chooses to allow access to this supplemental provider panel, and separately

contracts with Informed’s Community Health Partners network or other providers or networks for such services. 

You anticipate that this type of arrangement may occur regarding the Washington County Health System, Inc.,

employee benefit plan that currently is TriState’s largest contract. You go on to say that, in order to provide

incentives for enrollees to stay within the program for their care, TriState will attempt to have payers designate these

additional providers as part of a “second tier network,” with higher co-payments and lower benefits (unless waived

due to medical necessity) for enrollees using their services. You should be aware that the conclusions regarding

TriState’s and its members’ joint negotiation and contracting with payers regarding the proposed program does not

apply to any arrangements between payers and such supplemental provider networks, whose participants are not

fully integrated into the proposed program. 

program, all of the practice’s physicians – including any who subsequently join the practice –

must become TriState Class I members and agree to all requirements of participation in the

program. TriState’s fifteen currently contracting licensed clinical social workers, who as nonphysicians are not eligible for formal membership, will provide services through direct contracts

with InforMed’s Community Health Partners network. The four nurse midwives currently

25

providing services already are employees of TriState’s hospital (Class II) member.

In order to become a Class I member of TriState, a physician must submit a written application,

successfully complete TriState’s credentialing process, be approved for membership by the

TriState’s board of directors, pay the required “joining fee” of $2,500, and sign a participating

provider contract that TriState has designed especially for the proposed program, which spells

out the obligations and requirements of both the physician and TriState regarding the program.

2. Participating Provider Contract

The “TriState Member Participating Provider Contract – Clinical Integration,” which each

physician member must execute, is the primary document formally evidencing TriState

physicians’ commitment to, and specifying their obligations regarding, the proposed program.

One requirement of the agreement is that member physicians agree in advance to participate in

all contracts that TriState enters into with payers for the proposed program, and to comply with

the requirements of those contracts. Physicians cannot opt out of participating in individual

contracts, or pick and choose among them regarding their participation. You state that this

requirement helps to assure that the panel of physicians providing services under the program is

stable and identifiable at the outset, and is not likely to vary from contract to contract. Having a

stable, identified panel of physicians, in turn, is expected, among other things, to facilitate in-
Letter to Christi J. Braun

April 13, 2009

Page 11

 Regarding the situation, mentioned previously, where patients enrolled in the proposed program choose to 26

seek care from providers who are not members of TriState, but who are part of the Community Health Partners

provider network, you anticipate that “[i]n the event that Plan enrollees see CHP physicians, the [TriState]

physicians, through monitoring of their patients’ EHRs [electronic health records], should be able to determine

whether or not their patients received guideline-directed care from the CHP physicians and, through follow-up care,

make up for any omissions. Although its achieved efficiencies may not reach the level of a closed-panel product,

[TriState] intends to do what it can to optimize the quality of care its patients receive, even if those patients selfselect and receive some care outside [TriState’s] network.”

network referrals, continuity of care, familiarity by physicians with the program’s standards and

requirements, and adherence to those standards and requirements.

26

A second aspect of the proposed program contained in the participating provider contract is that

TriState physicians generally agree to refer patients to other TriState network physicians “when

medically appropriate,” with the exception that this does not require the referring physician “to

direct Enrollees to other Network providers from whom the Enrollee does not wish to receive

treatment.” Requiring in-network referrals as the default standard both helps to assure that

referred patients will continue to receive care under the practice standards and requirements of

TriState’s program, and allows TriState to obtain more complete information regarding both the

care provided to those patients and the performance of the treating physicians regarding that

treatment. This information, in turn, facilitates TriState’s monitoring and oversight activities,

and thus achievement of the program’s potential efficiencies in providing coordinated and

appropriate patient care.

The participation agreement also generally obligates each physician member to comply with all

of TriState’s “policies, procedures, rules and regulations,” and specifically identifies a number of

areas where physicians must cooperate with the proposed program. For example, physicians

must cooperate with the proposed program’s requirements regarding utilization management,

patient referrals, pre-authorization of services, use of clinical practice guidelines, provision of

information to TriState for it to effectively monitor physician performance and patient care, and

operation of various other oversight and review aspects of the program. Physicians also agree

that they and their office staff will be trained in, and use, TriState’s health information

technology capabilities. 

3. Personal Participation by TriState Member Physicians in

the Development and Operation of the Proposed Program

You state that “every physician who agrees to participate in the clinical integration program will

acknowledge their commitment to fully support the tenets of the program by assisting in the

development of, and practice to, the clinical practice guidelines created in collaboration with

their peers, utilizing the tools embedded in the EHR [electronic health record], and showing

progress towards continual process improvement (‘moving the mean’).” You point out that
Letter to Christi J. Braun

April 13, 2009

Page 12

 In addition to its board, TriState has committees responsible for various non-clinical operational functions

27

(Nominating, Bylaws, Communications, and Contracting Finance Administration), as well as committees and subcommittees for clinical operations. The Clinical Integration Oversight Committee, which is the body most directly

responsible for overall supervision and oversight in this area, includes the chairs of five related sub-committees –

Credentialing, Quality Assurance/Utilization Management, Quality Improvement, Pharmacy Benefits Management,

and Care Coordination. 

 Physicians may request that they be excused from such activities if they would “constitute a serious hardship 28

or undue burden,” including such justifications as “excessive demands of professional practice, personal or family

health considerations, and service on committees or boards.”

more than forty physicians “currently are participating in formal committees and governance”

regarding TriState. You also state that 27

[m]any more physicians, although not formal committee members, have served

on an ad hoc basis, assisting in the review of clinical practice guidelines that

impact their specialty. It is expected that virtually the entire membership, at one

time or another, will participate in the development of some component of the

program. This not only is an expectation of continued membership in [TriState],

but also an affirmation of commitment to clinical integration.

Under the participating provider contract, physician members agree to “cooperate with [TriState]

in the development and implementation of [TriState’s] clinical integration program.” They also

agree to “give due consideration to a request . . . to participate in” such activities as sharing

clinical best-practice ideas and methods; developing, reviewing, or commenting upon clinical

practice guidelines; leading a training session regarding a clinical practice guideline; reviewing

patient files of a Network Practitioner and making recommendations for improvement; and

mentoring a Network Practitioner.28

C. Mechanisms to Assure Physicians’ Compliance 

with TriState’s Program Requirements 

TriState has established mechanisms to identify physicians who appear to be high-cost providers

or over/under users of resources. As noted previously, to participate in the proposed program,

TriState physicians will be required to execute a “TriState Member Participating Provider

Contract – Clinical Integration,” which identifies the various core aspects of the proposed

program, and evidences the physicians’ agreement to participate in the program and comply with 

its requirements. Among those requirements are providing TriState with patient and treatment

information necessary to implement its programs, complying with TriState’s clinical practice

guidelines, assisting TriState in completing quality, safety, and cost assessments, serving on

TriState clinical integration oversight subcommittees, cooperating in the development and

implementation of the program, referring enrollees to other network practitioners, when

medically appropriate, and accepting, being trained on, and using TriState’s information

technology hardware and software, and complying with TriState’s rules and regulations.
Letter to Christi J. Braun

April 13, 2009

Page 13

TriState will monitor each physician’s compliance with its treatment protocols and other practice

requirements. This process will include providing the physician with comparative data relative

to the performance of the other TriState physicians, and using other benchmarks and peer

counseling in order to generate performance improvement. You identify instances where, in the

past, TriState had to deal with physicians or practices that were reluctant to accept certain

monitoring or practice standard requirements, and where TriState was successful in convincing

those physicians to embrace those requirements. Finally, you note that “[w]hen necessary,

however, TriState will remove physicians from its network who refuse to improve (‘culling the

outliers’).”

D. Measurement and Achievement of Efficiencies from the Proposed Program

TriState has not attempted to quantify the potential or likely overall efficiency benefits of its

proposed program, or specified how overall cost or quality efficiency gains will be measured. 

However, as evidence of TriState’s capability to achieve measurable efficiency improvements,

you describe the results of a pilot “pay for performance” disease management program for

diabetes that TriState implemented for Washington County Health System, Inc., employees from

2005 through 2008. Using 2005 data as a baseline, TriState reports achieving what appear to be

significant improvements in population clinical results (e.g., hemoglobin A1c values, and

frequency of several indicated tests), and reductions in several measures of use of expensive and

potentially avoidable hospital and other medical resources (population utilization results). The

pilot program was credited with achieving savings calculated at $159,898.00, which were evenly

split between TriState and Washington County Health System, Inc.

Regarding measures of performance for the proposed program, you state that TriState “is in the

very early stages of determining which metrics [of performance] initially will be measured, how

they will be measured, and how this will be communicated to the membership.” You state that

TriState’s proposed program will identify “best practices” and then identify both over-utilization

and under-utilization of services by participating physicians. Through feedback, and promoting

“best practices,” TriState will seek to “move the mean” on key quality indicators, such as

increasing rates of colorectal cancer screening, lowering hemoglobin A1c levels, and improving

lipid profile scores. TriState will monitor the cost of care and use of resources by each physician

and, through use of “report cards,” provide performance feedback to each physician, including

comparisons with both their peers’ performance and regional and national performance

benchmarks. You, however, have not provided details of this feedback process, such as the form

and the frequency of the performance report cards, or how the system of applying remedial

measures to improve performance will operate.
Letter to Christi J. Braun

April 13, 2009

Page 14

 See, e.g., Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982); United States v. Trenton

29

Potteries Co., 273 U.S. 392 (1927).

 See United States v. Addyston Pipe & Steel Co., 85 F. 271 (6 Cir. 1898), modified 175 U.S. 211 (1899). This 30 th

analytical approach was subsumed within the analysis that the Commission applied in Polygram Holding, Inc., 5

Trade Reg. Rep. (CCH) ¶ 15,453 (FTC 2003) (available at www.ftc.gov/os/caselist/d9298.shtm, aff’d. sub nom.

Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005), and North Texas Specialty Physicians, 2005-2 Trade

Cas. (CCH) ¶ 75,032, (available at http://www.ftc.gov/os/adjpro/d9312/index.shtm, aff’d. sub nom. North Texas

Specialty Physicians v. FTC, 528 F.3d 346 (5 Cir. 2008). Likewise, this analytical approach was incorporated by th

the federal antitrust enforcement agencies in both the Health Care Statements and the Federal Trade Commission

and the U.S. Department of Justice, Antitrust Guidelines for Collaborations Among Competitors (April 2000)

(hereinafter Competitor Collaboration Guidelines) (available at http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf).

The Health Care Statements, for example, specify how, consistent with general antitrust law principles, physician

network joint ventures’ negotiating and contracting with payers on behalf of their competing physician members will

be analyzed by the antitrust enforcement agencies: “In accord with general antitrust principles, physician network

joint ventures will be analyzed under the rule of reason, and will not be viewed as per se illegal, if the physicians’

integration through the network is likely to produce significant efficiencies that benefit consumers, and any price

agreements (or other agreements that would otherwise be per se illegal) by the network physicians are reasonably

necessary to realize those efficiencies.” Health Care Statements at Statement 8, § B.1. See also Health Care

Statements, Statement 9 at § A. (regarding multi-provider networks). The Competitor Collaboration Guidelines

state (at § 3.2), “If . . . participants in an efficiency-enhancing integration of economic activity enter into an

agreement that is reasonably related to the integration and reasonably necessary to achieve its procompetitive

benefits, the Agencies analyze the agreement under the rule of reason, even if it is of a type that might otherwise be

considered per se illegal.” See also Letter to Clifton E. Johnson, Esquire, and William H. Thompson, Esquire from

David R. Pender, Acting Assistant Director, Bureau of Competition, Federal Trade Commission (March 28, 2006)

(staff advisory opinion concerning Suburban Health Organization, Inc.) (available at

http://www.ftc.gov/os/2006/03/SuburbanHealthOrganizationStaffAdvisoryOpinion03282006.pdf), at n. 14-17, and

accompanying text.

IV. Analysis

A. The Legal Standard

Tristate’s proposed program will involve agreement on the levels of fees to be charged by its

competing physician members for their professional medical services provided under contracts

between TriState and various payers. TriState also will be collectively negotiating on behalf of

its competing physician members the terms of dealing, including price terms, by those

physicians under contracts between TriState and various payers. In the absence of adequate

justification for this activity, such a course of conduct would be summarily condemned as per se

illegal price fixing under long-standing antitrust law standards. Further analysis as to 29

competitive effects of this type of conduct is required, however, when it occurs in the context of

a potentially efficiency-enhancing joint venture among otherwise competing market participants,

and the competitive restraints are “ancillary” to the joint venture – i.e., subordinate to the

primary purpose of the legitimate and potentially procompetitive joint venture, and reasonably

necessary to its success and achievement of the efficiencies it makes possible. We address 30

TriState’s proposed program under this standard for “clinical integration.”
Letter to Christi J. Braun

April 13, 2009

Page 15

 See Health Care Statements at Statement 8, § A.4. (Sharing of substantial financial risk “normally is a clear

31

and reliable indicator that a physician network involves sufficient integration by its physician participants to achieve

significant efficiencies. Risk sharing provides incentives for the physicians to cooperate in controlling costs and

improving quality by managing the provision of services by network physicians.”); Statement 8, § B.1. (“Where the

participants in a physician network joint venture have agreed to share substantial financial risk . . . their risk-sharing

arrangement generally establishes both an overall efficiency goal for the venture and the incentives for the

physicians to meet that goal.”). 

 Health Care Statements at Statement 8, § B.1. The Health Care Statements emphasize, however, that these

32

are only illustrative examples: they “are not . . . the only types of arrangements that can evidence sufficient

integration to warrant rule of reason analysis [also assuming, of course, that the agreements eliminating competition

among the participants in the arrangement are reasonably necessary to achieve the arrangement’s potential

efficiencies], and the Agencies will consider other arrangements that also may evidence such integration.”

B. Integration and Likelihood of Achieving Significant

Efficiencies Through TriState’s Proposed Program

The Health Care Statements address certain ways in which physician or other health care

networks may be able to evidence that they involve sufficient integration among the participants

so as to be likely to produce significant efficiencies. One type of arrangement through which

integration may occur involves creation of a high degree of interdependence among the

network’s participants in the provision of care to patients served by the provider network. In

networks involving significant clinical integration, the antitrust inquiry and analysis initially

seek to ascertain whether the program’s structure and operation have the capability, and the

participants have the necessary motivation, to achieve the program’s intended efficiency goals in

the absence, for example, of the financial incentives and constraints typically provided by

arrangements that involve the sharing of substantial financial risk by the network’s participants.

31

In describing networks whose members clinically integrate, the Health Care Statements note that

such integration can be demonstrated:

by 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. This program may include:

(1) establishing mechanisms to monitor and control utilization of health

care services that are designed to control costs and assure quality of care;

(2) selectively choosing network physicians who are likely to further these

efficiency objectives; and (3) the significant investment of capital, both

monetary and human, in the necessary infrastructure and capability to

realize the claimed efficiencies.32
Letter to Christi J. Braun

April 13, 2009

Page 16

 Health Care Statements at Statement 8, § B.1. See also Statement 9, § B.2.c.

33

Most multiprovider networks will contract with some, but not all, providers in an area. Such

selective contracting may be a method through which networks limit their provider panels in an

effort to achieve quality and cost-containment goals, and thus enhance their ability to compete

against other networks. One reason often advanced for selective contracting is to ensure that the

network can direct a sufficient patient volume to its providers to justify . . . adherence to strict

quality controls by the providers. It may also help the network create a favorable market

reputation based on careful selection of high quality, cost-effective providers. In addition,

selective contracting may be procompetitive by giving non-participant providers an incentive to

form competing networks.

 Health Care Statements at Statement 8, § B.1. 34

 It is not clear whether other physicians practicing in TriState’s service area, but who currently are neither 35

TriState members nor contracting physicians, are also being given the opportunity to join TriState and participate in

the proposed program.

1. Selective Participation of Network Physicians

in the Proposed Program

One aspect of provider network programs that is likely to affect their success in

achieving integrative efficiencies is “selectively choosing network physicians who are

likely to further . . . [the program’s] efficiency objectives.” These physicians must

33

agree to certain practice and business constraints, as well as to be subject to a variety 

of monitoring, oversight, and remedial activities by the network, in order to assure that the

anticipated integration and efficiencies of the program can be achieved. There may exist a

tension between a network arrangement’s desire to include all interested or eligible providers,

and its need to restrict participation only to those who are fully committed to accepting the

significant limitations on their independent decision making that are necessary if the network is

to succeed in controlling costs and improving quality. Moreover, the larger a network becomes,

the more difficult it may be to establish the “high degree of interdependence and cooperation

among the physicians to control costs and ensure quality” that is the hallmark of clinical 34

integration.

TriState has stated that participation in the proposed program is open to all current members who

agree to the proposed program’s requirements and to all contracting physicians who become

TriState members and likewise agree to the program’s requirements. Thus, TriState is not 35

initially being “selective” by excluding in any significant way local area providers from

eligibility to participate in the proposed program. TriState’s proposed program will, however,

impose a number of requirements that are likely to discourage providers not fully committed to

the program from seeking to join it, and thus assure that those who do choose to participate will

be fully committed to its goals and requirements. 
Letter to Christi J. Braun

April 13, 2009

Page 17

 See Health Care Statements at Statement 8 at § B.1.; Statement 9 at § A. (referencing Statement 8 at § B.1.). 36

 While not specifically addressed in the Health Care Statements, nor readily quantifiable, we nevertheless are

37

aware that many physicians, as responsible professionals, may be self-motivated to enthusiastically participate in

innovative programs aimed at improving quality and reducing costs for their patients. This type of incentive for

efficiency, however, may not apply or apply equally to all physicians. This particularly may be the case where the

prevailing method of payment for physicians’ services is on a fee-for-service basis, which creates financial

incentives to provide more services, rather than rewarding the more efficient and effective provision of services.

Most important among the requirements of participation is that each physician must become a

full member of TriState, and execute a participating provider contract, which obligates the

physician to participate and cooperate in all of the various efficiency-enhancing aspects of the

proposed program. With regard to membership, TriState is eliminating the category of

“contracting physicians,” whereby physicians previously could provide, and be paid for, services

under TriState contracts, without becoming full members of the organization. Thus, to

participate in the proposed program, physicians must commit to membership in TriState, incur

the financial and other obligations of membership, sign the new provider participation contract

for the program, and accept the obligations that agreement entails. Concurrently, TriState is

restricting the circumstances under which physicians subsequently may join TriState and

participate in the proposed program. These actions appear to be intended, and likely, to require

both current physician members and contracting physicians to assess their willingness to commit

to the requirements of the proposed program at this time. This, in turn, should result in TriState

having a provider panel that will largely be “closed,” and which will include only physicians

who have fully and knowingly committed to both the organization and its proposed program.

 

2. Physician Investment of Monetary and Human Capital

in the Proposed Program

The Health Care Statements note that “the significant investment of capital, both monetary and

human, in the necessary infrastructure and capability to realize the claimed efficiencies” of a

network joint venture may help evidence that it involves substantial integration that is likely to

result in significant efficiencies. Such “investment” by participants can evidence their stake in, 36

and degree of commitment to, the successful operation of the venture, and therefore support the

likelihood of the program achieving efficiencies as a result of the participants’ joint activity

through the enterprise. While not necessarily sufficient in itself, substantial financial or other

investment by participants in a joint venture supports the view that the participants are likely to

be motivated to work toward the venture’s success in the market – which, in this case, requires it

to succeed in improving the quality, and controlling the costs, of the health care services

provided pursuant to the proposed program to their patients who are enrolled in the program. 

37

As mentioned earlier, physicians are required to pay an initial “joining fee” upon 

becoming members of TriState. Most of TriState’s physician members presumably paid this fee

around the time of TriState’s establishment in the mid-1990s, with those joining since then

paying the fee upon becoming new members. Physicians that previously were contracted
Letter to Christi J. Braun

April 13, 2009

Page 18

 While no such additional fees currently are contemplated, TriState’s board is empowered to levy additional 38

assessments on the membership, if it deems such action to be necessary.

physicians, rather than members, and who accept TriState’s offer to now become members, also

will be required to pay this fee as a condition of membership. There will, however, be no

additional direct financial contributions or investments required of TriState members in order to

fund or participate in the proposed program. While you state that “[t]he program’s success will 38

require a portion of the members’ capital contributions to finance the infrastructure and HIT

[health information technology],” it is difficult to characterize using a portion of the initial joining

fee paid by most TriState members many years ago as a significant financial investment in the

proposed program, or as one that is likely to instill in long-time members a particular sense of

commitment to the new proposed program’s success. For new member physicians of TriState,

however, the joining fee of $2,500 may provide at least some sense of financial investment in the

proposed program, and a consequent degree of “buy-in” by them to the program’s success.

In addition, you state that those physicians – for example, previously contracted physicians who

newly become members of TriState in order to participate in the proposed program, likely will

need to invest an estimated $2,600 in computer and related equipment in order to participate in

the program. Finally, all participating physicians and their office staffs will be required to devote

time to being trained in the program’s operation, particularly those aspects related to use of its

health information technology and electronic health records. You estimate that this will equate to

a cost of about $2,500 in physician billing and office staff time for the average two-physician

office.

These combined financial investments in the program – for joining TriState, for purchase of

computer and related equipment, and for lost billing and staff time to receive training for the

program – while not trivial, nevertheless appear relatively modest for many physician practices,

particularly for the substantial majority of physicians who previously paid the $2,500 TriState

joining fee, and may also have acquired the computer systems needed for the proposed program

as part of their participation in TriState’s previously existing programs. For physicians newly

joining TriState to participate in the proposed program, the total investment, which by your

estimate could be as much as $7,600, is a more substantial sum. Overall, in our opinion, while

this financial investment may provide some sense of identification with TriState and its proposed

program, it appears unlikely, by itself, to be sufficiently great to strongly motivate the majority of

TriState physicians to work toward the success of the program. 

However, financial investment is not the only form of investment in the proposed program by

TriState’s physician members. You state that “[t]he [proposed] program’s success will also

require the physician participants’ to invest significant amounts of time and effort serving on

TriState’s formal and ad hoc committees, implementing guidelines and protocols in their

practices, integrating medical management into their practices, collaborating in the care of their

patients, and working together to achieve their quality and cost benchmarks.” As mentioned

earlier, a substantial number of TriState physicians already have contributed their time and effort
Letter to Christi J. Braun

April 13, 2009

Page 19

 Regarding what the Agencies refer to as the necessary infrastructure and capability to achieve significant 39

integrative efficiencies, knowledgeable commentators have emphasized the importance of systematized approaches

– sometimes referred to as “organized processes” – in achieving the potential efficiency benefits of clinical

integration arrangements among otherwise independently practicing physicians. See, e.g., L. P. Casalino, The

Federal Trade Commission, Clinical Integration, and the Organization of Physician Practice, 31 J. of Health

Politics, Policy and Law 569 at 580-81 (June 2006) (“[T]here is ample evidence both that the use by physician

groups of organized processes to improve quality is effective and that it is uncommon (citations omitted). The

processes suggested by the FTC clinical integration policy are consistent with the literature on quality improvement . . . .”); L. P. Casalino, R. R. Gillies, et al., External Incentives, Information Technology, and Organized

Processes to Improve Health Care Quality for Patients with Chronic Diseases, 289 JAMA 434 (January 22/29,

2003); and S. M. Shortell and L. P. Casalino, Health Care Reform Requires Accountable Care Systems, 300 JAMA

95 (July 2, 2008) (an “accountable care system” is “an entity that can implement organized processes for improving

the quality and controlling the costs of care and be held accountable for the results.”). 

in developing various aspects of the proposed program and in serving on various formal and ad

hoc committees. Moreover, you state that you expect that most physicians participating in the

program will be called upon and expected, at one time or another, to contribute to the program’s

operation and success by doing any of a number of tasks related to the design and successful

implementation of the program’s specific aspects, and this expectation is specified in the

Participating Provider Contract. 

In our view, and as described above, a significant number of TriState physicians appear to have

made, and likely will continue to make, non-trivial investments of time and effort in the

development and ongoing operation of TriState’s proposed program. In addition to many

physicians participating in various committees and projects to develop the proposed program,

most or all physicians will be required to incur significant opportunity costs in order to devote the

necessary time for themselves and their staffs to be trained in use of the health information

technology and electronic health records components of the program. TriState physicians also

will be making some degree of financial investment in the program, particularly those physicians

who newly become members of TriState, including previously contracting physicians who wish

to participate in the proposed program. These various forms of “investment” by physicians in the

proposed program together appear to evidence a substantial degree of commitment to the

program’s success. Likewise, Washington County Hospital Association will be contributing

significantly to the proposed program through having hospital and hospital affiliate employed

staff participate in various committees and provide their expertise in a variety of and positions,

and through the matching of physicians’ $2,500 joining fee for TriState membership.

3. Infrastructure and Program Capability for Integrating

the Provision of Care and Achieving Efficiencies39

TriState appears to have included in its proposed program a variety of structural and operational

aspects that seem likely to result in significantly increased interaction and cooperation among its

physician members in the treatment of patients covered under the program. Among these are:

(a) establishing a largely closed panel of providers committed to practicing consistently with

evidence-based medicine standards and clinical guidelines developed or tailored by the program’s
Letter to Christi J. Braun

April 13, 2009

Page 20

 Payers frequently seek to provide enrollees with access to a broad network of providers in response to 40

consumer backlash against past restrictive provider panels under some managed care programs.

participants; (b) maintaining continuity and coordination of care through a within-network

referral policy; (c) requiring use of health information technology, including electronic health

records, to coordinate care, effectively communicate among network providers, eliminate

unnecessary duplication of tests, and collect performance data; (d) establishing mechanisms to

collect and evaluate treatment and performance data, including data on appropriate use of health

care resources; (e) requiring broad participation of the program’s physicians in various aspects of

the program’s development, implementation, and ongoing operation; and (f) establishing

procedures and mechanisms, including various committees that include participating physicians,

to provide feedback on both individual and group performance, address performance deficiencies

and, if necessary, impose sanctions for physicians whose performance is chronically deficient

regarding program requirements and standards.

One potential area of concern regarding the program’s ability to provide integrated care and

achieve potential efficiencies, which you acknowledge, is the possibility of “leakage” of patients

to non-TriState providers where a contracting employer or other payer allows enrollees to seek

care out of network – for example by separately contracting for additional access to a broader

network, such as InforMed’s Community Health Partners network. In addition to removing 40

patients from TriState’s integrated care systems, this may create gaps in the information available

to TriState regarding the patients’ treatment and health status. These types of potential gaps in

care coordination and information for the proposed program, while perhaps unavoidable,

nevertheless could prove to be problematic for TriState in achieving its integration and efficiency

goals. TriState states that it intends to seek a tiering system in its payer contracts for the proposed

program, providing financial incentives in the form of lower deductibles and copayments for

enrollees who stay within the TriState network for their treatment. TriState also has arranged

with InforMed to obtain access to data regarding enrollees’ use of services from other

Community Health Partners network providers, and hopes to do this with other contracting

payers, such as CareFirst Blue Cross Blue Shield, as well. Whether patient leakage outside the

TriState network proves to be a significant problem for the proposed program, whether these

remedial approaches can and will be implemented effectively, and whether they will prove

adequate to address the problem, all are questions that cannot be answered with any confidence at

this time. 

4. Measurement and Evaluation of Performance Results

The proposed program identifies a number of measures of physician performance, such as

frequency of adherence to clinical practice guidelines, and both patient status and physician

performance measures. But other than to generally state that individual and group performance

on various as-yet-undetermined measures will be compared to peer, regional, and national

benchmarks, you have provided very little information concerning how success or failure of the
Letter to Christi J. Braun

April 13, 2009

Page 21

 The hospital has matched physicians’ initial membership fee for joining TriState since TriState’s inception,

41

and continues to do so for new physician members. Several physicians employed by the hospital also serve in

leadership positions in TriState, and several hospital and Antietam Health Services directors and managers serve on

TriState committees.

proposed program will be measured over time on a more macro level, such as in terms of cost or

utilization of services by covered populations, or improvements in health status or outcomes. 

TriState’s pilot pay-for-performance program for diabetes treatment involving Washington

County Health System, Inc., employees, which appears to have generated significant positive

results – including financial savings from reduced hospital admissions and use resulting from the

interventions – suggests that TriState already has some capability to measure and evaluate its and

its members’ performance. The information you have provided indicates that TriState is in the

process of further developing this capability. Moreover, it seems likely that, as a business

necessity, TriState will have to be able to provide this type of performance outcome data over

time and on a broader scale in order to convince employers and other payers of the potential

benefits of contracting with TriState for the program. Thus, we are reasonably confident that

TriState is or will be capable of implementing, and will have the incentive to implement,

appropriate mechanisms to measure and evaluate its and its participants’ performance under the

proposed program.

We also note that TriState has expressed its intention to further develop a pay-for-performance

program regarding its services, although that future aspect of the program will require a period of

time for accumulation of baseline data, and is not formally addressed in this opinion letter. 

5. Effect of Washington County Hospital Association’s Involvement on

the Proposed Program’s Ability and Likelihood of Achieving

Significant Efficiencies

As noted previously, TriState is a physician-hospital organization that has as the sole member of

one class of its membership Washington County Hospital Association, which operates the

Washington County Hospital. Washington County Hospital Association has significant

representation on the TriState board, and its representatives serve in numerous positions within

the TriState organization. The potential effects of Washington County Hospital Association’s

involvement (and, indirectly, that of its related organizations) in the proposed program on the

likelihood of its achieving significant efficiencies are not clear. On the one hand the hospital has

considerable resources, including financial contributions, technical support, and infrastructure, 

that it has made and will continue to make available to the program. These contributions to the 41

joint venture by the hospital may help the proposed program to operate more effectively and may

even have been essential for the program’s development and establishment in the first place. The

hospital’s parent organization – Washington County Health System, Inc. – also is the largest

employer in TriState’s primary service area, and its employee benefits program is the potential

source of the largest number of covered lives for the proposed program. Washington County
Letter to Christi J. Braun

April 13, 2009

Page 22

 See also, e.g., L. R. Burns and R. W. Muller, Hospital-Physician Collaboration: Landscape of Economic 42

Integration and Impact on Clinical Integration, 86 The Milbank Quarterly 375-434 (2008) (discussing the differing

and only partially overlapping goals of physicians and hospitals, and the implications for hospital-physician

relationships). See also A. E. Cuellar and P. J. Gertler, “Strategic Integration of Hospitals and Physicians” (May 1,

2002) (available at http://faculty.haas.berkeley.edu/gertler/working_papers/hospital_VI_5_10_02.pdf) (paper

examining whether efforts at hospital-physician integration leads to efficiency gains or is a strategy for the

participants to improve bargaining power, and thereby increase prices.). 

 This holds true where the price paid exceeds the cost of providing the service.

43

 Moreover, under TriState’s bylaws, the board requires a majority vote of both the Class 1 Physician member 44

representatives and the Class 2 hospital representatives in order to take any action. Thus, it does not appear that the

(continued...)

Health System, Inc.’s related health care operations, such as lab and pharmacy, potentially also

are positioned for effective use as part of the integration of care to enrollees under the proposed

program.

As you acknowledge in your submission, however, there also is a potential conflict of interest

between the hospital and the proposed program. Under most current reimbursement systems, 42

hospitals, as sellers of their services, often have an incentive to admit patients and fill available

beds with paying customers, and to have them use diagnostic and treatment services for which the

hospital receives additional payment. Due to the unique rate regulatory system in Maryland, 43

however, although Washington County Hospital Association has an economic incentive to ensure

that incremental admissions come to its hospital, it does not appear to have the incentive, and may

even have a disincentive, to provide diagnostic and treatment services or lengths of stay in excess

of the regulated reimbursement per discharge set by the state. Under these circumstances,

Washington County Hospital Association’s financial incentives as a seller of services potentially

could conflict with the proposed program’s goal of rationalizing the use of services provided to

patients, including keeping them out of the hospital through disease management, use of

preventive services, and adherence to treatment protocols, or even providing certain services to

admitted patients.

Any financial incentive of the hospital to increase admissions, however, may be tempered by the

fact that Washington County Health System, Inc., as the area’s largest employer and TriState’s

largest customer, pays for all the hospital services used by its employees and their dependents

covered under its employee benefits program. Thus, in its role as a purchaser and payer of

services on behalf of its employees, Washington County Health System, Inc., has a financial

incentive to rationalize and more efficiently provide health care services, improve quality, and

control its program costs, and to help TriState succeed in its efforts to do so. In sum, it is difficult

to conclude one way or the other as to whether Washington County Hospital Association’s and its

affiliates’ involvement in TriState’s operation is likely to enhance, undermine, or have no net

effect on the ability and likelihood of TriState’s achieving significant efficiencies as a result of

the proposed program.44
Letter to Christi J. Braun

April 13, 2009

Page 23

 (...continued) 44

hospital’s involvement in TriState’s governance could result in TriState being forced to adopt policies or undertake

activities that would benefit the hospital at the expense of successful operation of the proposed program. 

 This conclusion, of course, represents only our best prospective assessment of the proposed program’s 45

potential. Whether TriState’s program in fact will create substantial integration among its physician participants,

whether the program is capable of achieving significant efficiencies as a result of that integration, and whether the

program’s participants will bring the requisite commitment and rigor to its implementation so as to achieve that

integration and resulting efficiencies, can only be determined by TriState’s actual performance over time. While the

potential benefits of a robust program appear intuitively obvious, the expected results of such efforts may not

necessarily occur. See, e.g., D. Peikes, et al., “Effects of Coordination on Hospitalization, Quality of Care, and

Health Care Expenditures Among Medicare Beneficiaries,” 301 JAMA 603 (Feb. 11, 2009) (finding no reduction in

hospitalizations or other cost benefits, and only modest or no quality improvements, resulting from care coordination

programs in fifteen Medicare demonstration projects); C. L. Damberg et al., “Taking Stock of Pay-For-Performance:

A Candid Assessment From the Front Lines,” 28 Health Affairs 517 (March/April 2009) (evaluation after three years

of the nation’s largest pay-for-performance program, by the Integrated Healthcare Association in California, found

that, despite physician organizations reporting “increased physician-level performance feedback and accountability,

speeded up information technology adoption, and sharpened . . . organizational focus and support for improvement

in response to P4P,” investment in the program “had not translated into breakthrough quality improvements.”). 

Moreover, while some components of clinical integration programs may have been the subject of study in particular

contexts, we are unaware of any significant body of the technical literature that has looked at, much less

conclusively demonstrated in any generalizable way, that physician or provider networks undertaking such programs

can achieve significant efficiencies in terms of either quality improvement or cost containment, or that have

identified the conditions or circumstances under which they are likely to do so. 

6. Conclusion Regarding Integration and Potential to

Achieve Significant Efficiencies

 

Overall, it appears that TriState’s proposed program is both intended and structured so as to be

likely to create substantial integration among its participating providers, particularly its member

physicians, in the provision of medical and other health care services. Operation of the program,

as proposed, will involve a significant degree of participation by, and interaction among, many or

most of the physician members of TriState regarding the services provided by each member under

the program, and the group as a whole. Member physicians will no longer provide their

professional services without a significant amount of reporting, observation, oversight, review,

evaluation, and, if appropriate, intervention by their peers to assure that practices conform with

evidence-based medicine “best practices.” This integration among the participating physicians in

the program, in turn, appears to have the potential to result in significant efficiencies, both in

terms of cost and quality, in the delivery of medical services to patients covered under payer

contracts for the program. Moreover, it appears that achievement of those efficiencies, if it 45

occurs, will be the result of the joint activities and infrastructure that TriState makes possible, and

which could not occur absent the TriState participants’ acting jointly and integrating their

provision of services through the proposed program.
Letter to Christi J. Braun

April 13, 2009

Page 24

 Citing Polk Bros., Inc. v. Forest City Enterprises, Inc, 776 F.2d 185, 189 (7 Cir. 1985). 46 th

C. Need and Justification for Joint Pricing and

Collective Negotiation of Payer Contracts

We have concluded, as discussed above, that TriState’s proposed program appears likely to

involve substantial integration by its physician participants that appears to have the potential to

achieve significant efficiencies in the physicians’ performance and the care of patients covered by

the program. We now consider whether the joint pricing of its physician members’ services and

collective negotiation of contracts with payers, are “ancillary” to – that is, related and subordinate

to, and reasonably necessary to further – that integration and the proposed program’s ability to

achieve integrative efficiencies. Accordingly, we turn to TriState’s explanations of why it

believes that its program’s competitive restraints are ancillary to the integration and achievement

of efficiencies, and therefore warrant a more detailed inquiry into their likely competitive effects

under the antitrust rule of reason.

1. TriState’s Proffered Justifications for Joint Contracting

You state TriState’s primary argument as to the need to jointly contract with payers for the

proposed program as follows:

For TriState to integrate its members’ services with the quality improvement

measures and medical management, it is important for all TriState physicians to

participate, and be included, in the contracted network. . . . The success of

Tristate’s program depends significantly on its physicians participating in all its

contracts. The only way to ensure that all TriState physicians participate in all

TriState payer contracts is for TriState to negotiate payer contracts for its complete

network and prohibit its members from “opting out” of its contracts. No other

contracting methodology will ensure full participation.

You go on to identify several reasons why you believe that full participation of all TriState

physicians in all payer contracts is reasonably necessary to the program’s success, and how joint

contracting on behalf of all physicians for all contracts will be “part of a larger endeavor whose

success they [the restraint(s)] promote.”46

First, you argue that, in order to effectively integrate the program’s quality improvement

initiatives and medical management services into the physicians’ practices, it is necessary to

maximize the number of patients in each physician’s practice subject to those practice

requirements.

Each . . . patient is an opportunity for the physicians to collaboratively treat a

patient, integrate guidelines and protocols into their practices, use the Clinical

Claims Chart, and incorporate medical management into their practices. The more
Letter to Christi J. Braun

April 13, 2009

Page 25

 In this regard, as noted previously, you have stated that TriState intends to seek to have included in all payer

47

contracts a tiered coverage provision that rewards patients in terms of lower deductibles and co-payments for staying

within the TriState provider network for their care.

TriState physicians engage in integrative activities, the more interdependent they

become, increasing the likelihood they will achieve the anticipated cost and quality

efficiencies.

Thus, in addition to assuring that more patients will be subject to the potential quality and

efficiency benefits of the program than would be the case if not every physician was a part of

every payer contract, you assert that maximizing the physicians’ activity under the constraints of

the program will accustom the physicians to the program’s system of integrating care, and

maximize its effective operation. 

Next, you assert that having all physicians in the program for all payer contracts and enrollees

will reinforce the in-network referral requirement, again maximizing the potential effectiveness of

the program, both in the provision of services and in the program’s ability to obtain data and

monitor both physician performance and patient treatment and status. “[E]ach time a TriState

patient goes out of network, TriState loses an opportunity to gather information for the Clinical

Claims Chart, to ensure [that] physicians have an accurate record of care, to improve the health of

that patient, and to control the costs of that patient’s care.”47

You then argue that having all physicians in all payer contracts will provide greater incentive for

those participating physicians to contribute their time and effort in developing and implementing

the program than would be the case if physicians had less involvement due to participation in

only a subset of contracts for the program. You state that “[w]ithout the physicians’ investment

of time in developing and implementing the clinical integration strategy, there will be no

integrated product for TriState to sell,” and note that physician participation in the program

involves a range of activities such as “reviewing guidelines, developing protocols, teaching their

peers about the guidelines and protocols, monitoring their peers’ quality, developing medical

management policies, reviewing prescription drug literature, or developing and maintaining a

drug formulary.” We understand this argument, in essence, to be that if physicians are not

required to participate in all payer contracts, which will result from joint contracting with payers,

their patient volume under the program may be too small for them to care sufficiently and devote

the necessary time and effort toward its operation and success. 

Finally, you make some more purely business-related justifications for joint contracting. You

state that joint contracting allows TriState to offer a network of providers that is readily

identifiable by payers and their subscribers in seeking services covered by the program. It also

provides transaction costs efficiencies for payers in avoiding the need for individual provider

contracts with each physician, as well as reducing TriState’s administrative costs and burden,

which would be considerably greater if different subsets of its physicians were participating under

each payer contract.
Letter to Christi J. Braun

April 13, 2009

Page 26

 As likely would occur if TriState, for example, used a “messenger” arrangement to convey each payer offer to 48

it physician members, who then individually would decide whether or not to participate in each payer contract.

2. Analysis of TriState’s Ancillarity Arguments

TriState’s primary argument of the reasonable necessity of joint contracting on behalf of all of its

physicians, in essence, is two sides of the same coin: that not having all member physicians

participating under all contracts would seriously undermine the ability of the program to function

efficiently and achieve its hoped-for benefits; and that the various aspects of the proposed

program, which require physicians to cooperate and interact in both their development and

implementation, will be far more effective if all physicians are maximally involved because,

through joint contracting, they are participating in all payer contracts under the program.

Without joint contracting, which will assure, and reinforce, TriState’s membership requirement,

that all physicians participate under all contracts, TriState potentially could have different

provider panels representing a subset of its membership for each payer contract. This, in turn, 48

could make it difficult to effectively maintain the in-network referral requirement, since referring

physicians might have to use different physicians for referrals under each contract. Likewise,

with varying provider panels for each contract, the ability of TriState to coordinate the care

provided to patients, and its ability to obtain information on both patients and providers would be

more difficult and the results less robust. Reduced information on provider behavior could

interfere with the program’s evaluation of, and feedback regarding, physicians’ practices in

treating patients, again undermining a key component of the program’s effort to improve

efficiency. Thus, while it might be theoretically possible to have a program without joint

contracting on behalf of all physicians in the program, such an approach appears likely to be far

more difficult, and potentially could compromise TriState’s ability to effectively integrate its

physician members’ provision of care, and to achieve the program’s potential efficiencies.

On the positive side, uniform participation will facilitate the program’s in-network referral

requirement, which is central to the program’s success in rationalizing and effectively providing

evidence-based care to the program’s enrollees. With a stable, defined network of participating

providers, physicians will easily be able to make referrals to other network physicians, knowing

that they also will be participating in the provision of coordinated care under the program’s

strictures. Likewise, maintaining a pre-set network makes it easier to assure that data and

information on patient treatment and provider activity and use of resources – necessary for

monitoring patient status and physician behavior, as well as the program’s achievement of its

efficiency goals – is available to the greatest extent possible. As noted above, achieving these

operational necessities would be far more difficult if different physicians were participating in

different payer contracts, referral patterns had to be adjusted accordingly to keep patients within

the applicable network, and information on patient treatments and provider behavior were less

uniformly available. 
Letter to Christi J. Braun

April 13, 2009

Page 27

 See, e.g., Statement 8 of the Health Care Statements at § B.2. (observing that while a physician network 49

generally is likely to achieve more significant efficiencies from the integration of its participants, “the Agencies will

consider [as efficiencies] a broad range of possible cost savings, including . . . economies of scale, and reduced

administrative or transaction costs.”). However, such “efficiencies,” in the absence of integration, occur in any

cartel, and alone do not justify rule-of-reason treatment of a price agreement. See Competitor Collaboration

Guidelines at § 3.2 (“The mere coordination of decisions on price, output, customers, territories, and the like is not

integration, and cost savings without integration are not a basis for avoiding per se condemnation.”).

Having complete provider participation as a result of joint contracting on their behalf also will

maximize the number of patients each physician has that are subject to the program’s various

efficiency-enhancing mechanisms, thereby increasing the physicians’ familiarity with, acceptance

of, and efficient participation in those program aspects and requirements. In essence, the more

physicians participate in the program, the faster they are likely to climb the learning curve in

effectively treating patients under the clinical integration system and its required components.

Guaranteed uniform participation by all physicians under all contracts, through joint contracting,

also is likely to contribute to the physicians’ commitment to the success of the program. The

greater the number of patients that a physician has who are under the proposed program, the more

he or she is likely to care about its operation and success, and the greater is likely to be the

physician’s willingness to invest the necessary time and effort in the various aspects of its

operation. Joint contracting on behalf of all TriState physicians will maximize each physician’s

opportunities to treat patients who are covered by the program which, in turn, should make them

more committed to the program’s success.

Having a stable provider network for all contracts also appears capable of enhancing TriState’s

effective business operations by helping to “brand” its product, and identify the program as a

single entity with a stable provider panel and a reputation regarding its product, much like the

way more highly integrated clinics are identified in the public’s mind.

Joint contracting also can reduce administrative costs for the program, and reduce transaction

costs for both its members and payers with which it contracts. Administrative and transaction

costs efficiencies, by themselves, are unlikely to be of sufficient magnitude to offset the loss of

competition from joint negotiation of prices by physicians in a provider network. Nevertheless,

these types of efficiencies may be real, and are cognizable under the antitrust laws in the context

of an integrated joint venture. 

49

We agree that having a predetermined, identified provider network for all services provided

pursuant to contracts with payers for the proposed program appears likely to promote the

program’s intended integration of its physician members’ provision of care, and the efficient

operation of the various aspects of the proposed program. It also may help in the effective

branding and marketing of the program. Increased physician participation and interaction, in

turn, should further TriState’s ability to achieve the program’s anticipated efficiency benefits. 

Moreover, without such joint contracting on behalf of all member physicians, effective operation

of TriState’s proposed program is likely to be far more difficult and its effectiveness could well
Letter to Christi J. Braun

April 13, 2009

Page 28

 TriState’s justification for what otherwise would appear to be an anticompetitive and unlawful price

50

agreement among its physician members rests on the proposed program’s procompetitive potential to achieve

efficiency benefits as a result of the participants’ integration through the program. If, however, the proposed

program ultimately were to fail to achieve significant integrative efficiencies, the anticompetitive effects of the

program would likely dominate. A prospective assessment of the program thus does not ensure its legality for all

time, and the Competitor Collaboration Guidelines make clear that assessment of the competitive effects of a joint

venture is an ongoing process that occurs over the life of the venture:

The competitive effects of a relevant agreement may change over time . . . . The Agencies assess the

competitive effects of a relevant agreement as of the time of possible harm to competition, whether at

formation of the collaboration or at a later time, as appropriate. However, an assessment after a

collaboration has been formed is sensitive to the reasonable expectations of participants whose significant

sunk cost investments in reliance on the relevant agreement were made before it became anticompetitive.

Competitor Collaboration Guidelines at § 2.4.

Thus, absent the realization of significant efficiencies at some point, it might be difficult to sustain the justification

that the arrangement’s competitive restraints are necessary to achieve such efficiencies, and that the arrangement,

overall, is not anticompetitive as a result of those restraints. We are not in a position to specify prospectively when

those efficiencies must be achieved, or what level of efficiencies would be “significant.” The best judges of that are

likely to be TriState’s customers “voting with their feet” if the program fails to achieve acceptable results within

what they view as a reasonable period of time. If payers at some future date conclude that the program does not

provide sufficient value, and decline to contract for it with TriState, this might signal the need for a prospective

reassessment of the overall competitive effects of the program. However, absent the exercise of market power by

the program or its participants, the market itself is likely to effectively address any competitive concerns that such a

situation might raise.

be compromised. Overall, such joint contracting appears to be subordinate to TriState’s

legitimate effort to improve efficiency and quality in the delivery of healthcare services through

integration by its participants. We therefore conclude that, on balance, joint contracting with

payers by TriState on behalf of its entire participating physician membership is an ancillary

restraint – one that is subordinate to, and reasonably necessary to further or make more effective

the potentially efficiency-enhancing and procompetitive integration that the proposed program

represents. 

50

D. Likely Competitive Effects of TriState’s Proposed Program

1. TriState’s Position and Available Alternatives in the Market 

We have not done an investigation or formal market analysis to define relevant geographic and

product markets within which TriState and its physician and hospital members compete. Rather,

our consideration of the likelihood that TriState would be capable of exercising market power in

the sale of those services under the proposed program, or that the proposed program otherwise
Letter to Christi J. Braun

April 13, 2009

Page 29

 The Health Care Statements note that “a variety of factors may tend to corroborate a network’s 51

anticompetitive nature, including: statements evidencing anticompetitive purpose; a recent history of

anticompetitive behavior or collusion in the market, including efforts to obstruct or undermine the development of

managed care; obvious anticompetitive structure of the network (e.g., a network comprising a very high percentage

of local area physicians, whose participation in the network is exclusive, without any plausible business or efficiency

justification); the absence of any mechanisms with the potential for generating significant efficiencies or otherwise

increasing competition through the network; the presence of anticompetitive collateral agreements; and the absence

of mechanisms to prevent the network’s operation from having anticompetitive spillover effects outside the

network.” Health Care Statements at Statement 8, § B.1. 

 TriState physicians represent half or more of the physicians with admitting privileges in anesthesiology,

52

cardiology, family medicine, internal medicine, nuclear medicine, obstetrics/gynecology, oral and maxillofacial

surgery, orthopedics, pediatrics, physical medicine, plastic surgery, podiatry, radiation oncology, and radiology. 

TriState physicians comprise 100 percent of physicians with privileges at the hospital in the specialties of allergy,

endocrinology, gastroenterology, infectious disease, neurosurgery, hematology/oncology, otolaryngology, pain

management, and pathology. TriState notes that in many specialties the high percentages are the result of there

being very few practitioners in the specialty that practice in the area, so that a relatively small number of TriState

member physicians nevertheless may represent a significant percentage of area physicians in a particular specialty. 

 A similar concern about the network including relatively high percentages of area physicians in certain 53

specialties was raised in the MedSouth advisory opinion letter. See Letter from Jeffrey W. Brennan, Assistant

Director, Health Care Services and Products, Bureau of Competition, Federal Trade Commission, to John J. Miles at

6 (Feb. 19, 2002), available at http://www.ftc.gov/bc/adops/medsouth.shtm.

might result in anticompetitive effects, is based solely on the information that you have provided 51

to us. 

a. Physician Services

You state that TriState currently has 212 physician members who are expected to participate in

the proposed program. While you represent that there are about 1,200 physicians in TriState’s

secondary service area, TriState physicians apparently represent a much higher percentage of the

physicians within its primary service area – essentially Washington County, Maryland, which

accounts for over 80 percent of admissions at Washington County Hospital. In fact, you state that

TriState physicians comprise 64 percent of Washington County Hospital’s medical staff, and half

or more of the physicians in a large number of specialties in TriState’s and the hospital’s primary

service area that have admitting privileges at the hospital. Thus, TriState, as a combination of a 52

substantial portion of the physicians in Washington County with privileges at the only hospital in

that county, appears to have the potential to exercise market power in the sale of its member

physicians’ services. This concern arises regarding the proposed program since, unlike 53

TriState’s current contracts, in which its physician members deal individually with InforMed and

other payers regarding price and related contract terms of their participation in those networks

and programs, TriState will be jointly contracting on behalf of its competing physician members

under the proposed program, including negotiating and agreeing regarding the prices to be

charged for those physicians’ services under the program.
Letter to Christi J. Braun

April 13, 2009

Page 30

 This contrasts with the situation faced by the proposed network arrangement by the Greater Rochester

54

Independent Practice Association (GRIPA), where other large provider networks appeared to be available to payers

as alternatives to GRIPA. See Letter from Markus H. Meier, Assistant Director, Bureau of Competition, Health Care

Division, Federal Trade Commission to Christi J. Braun, Esquire, and John J. Miles, Esquire at 25-26 (of Sep. 17,

2007), available at http://www.ftc.gov/bc/adops/gripa.pdf. 

 For a discussion of the Agencies’ approach to determining the exclusivity or non-exclusivity of physicians’ 55

participation in a network joint venture, including an enumeration of several “indicia of non-exclusivity” that may

weigh in that assessment, see Health Care Statements at Statement 8, § A.3. See also Id. at Statement 9, § B.2.b.

 You state that TriState “has not tied, and will not tie, hospital services and physician services in contracting

56

with customers. WCHA also will not tie the sale of its hospital services to payers’ purchasing [TriState’s] physician

services. . . . WCHA will not force any payer to buy [TriState’s] clinically integrated product by conditioning the

sale of WCHA’s hospital services on the payer contracting with [TriState].” 

You also state that “[t]here are no IPAs or PHOs other than TriState operating within Washington

County,” and it therefore is not clear that there are any competitively reasonable alternatives to

TriState available to payers in TriState’s primary service area. Your submission mentions 54

InforMed’s “regional” network and certain networks used by some large private payers, which

apparently cover a much broader area than just Washington County, as well as other providers

operating within TriState’s secondary service area. You, however, provide little information

about these networks or providers, and it is not obvious that they represent realistic or practical

alternatives to TriState and its members for payers to offer to their beneficiaries in order to obtain

health care services within TriState’s primary service area.

A potential concern may arise where a network’s provider panel is over-inclusive – for example,

comprising significantly more total physicians or physicians in particular medical specialties than

is necessary for it to provide services effectively to its likely customers. Such over-inclusiveness

may make it more difficult for, and lessen the likelihood that, other, potentially competing

networks and programs will develop in the area. We are not in a position to do a detailed

specialty-by-specialty assessment of TriState’s provider needs, and none was provided to us.

Nevertheless, TriState’s non-urban geographic location and the limited total number of physicians

in its primary service area, combined with the fairly modest absolute numbers of member

physicians and physician practices in each specialty area, suggest that TriState’s physician

network may not be over-inclusive. This view is supported by TriState’s historical operation,

where its largest customer – the Washington County Health System, Inc., health plan – essentially

required TriState to add a significant number of “contracting physicians” to supplement its

provider panel of physician members. 

TriState attempts to address these potential competitive concerns by providing assurances that its

proposed program will be non-exclusive, “both de jure and de facto,” and that payers who do 55

not wish to contract for the proposed program will be able to contract individually with TriState’s

member physicians, as well as with Washington County Hospital, as they currently do. While

56

TriState will inform payers and its members of this non-exclusivity, and will counsel its members
Letter to Christi J. Braun

April 13, 2009

Page 31

 The MedSouth advisory opinion raised similar concerns about possible anticompetitive effects – both in 57

terms of physician participants not dealing individually with payers and regarding possible “spillover” price effects –

potentially resulting from that program’s having high percentages of available physicians in certain specialties,

despite the program’s “explicit policy of ‘nonexclusivity’.” The opinion letter noted that, despite the claimed nonexclusivity:

MedSouth members may have the incentive and the ability to agree not to contract independently

of the venture. They have incentives to seek higher fees to recoup their investments in developing

and implementing the proposed program. Negotiation of fee-for-service rates for the group will

involve identification of price levels that could become the focal point for collusion on individual

contracts. To the extent that the program creates greater communication and interdependence

among the doctors, the easier it likely would be for them to coordinate their activities. Particularly

in light of the doctors’ existing referral arrangements, MedSouth members may be able to

discipline members of the IPA who might be inclined to break ranks and contract independently.

The letter went on to state, however, that:

[w]e cannot conclude with certainty that MedSouth’s physicians actually will contract outside the

IPA; nor can we conclude . . . that MedSouth’s operation will restrict competition unreasonably

. . . We assume for purposes of this advisory opinion that your representations regarding the

availability of MedSouth members to contract individually with health plans at competitive rates is

accurate and will be borne out by the members’ actual conduct.

 In considering the blanket license arrangement in Broadcast Music, the Supreme Court noted that “[t]he 58

District Court found that there was no legal, practical, or conspiratorial impediment to . . . [customers] obtaining

individual licenses [to use individual compositions]; . . . [customers], in short, had a real choice.” 441 U.S. at 24. 

Assuming that TriState, in fact, operates in a truly non-exclusive fashion, payers likewise should have the option to

purchase the services of individual TriState member physicians without having to deal through TriState. 

about antitrust concerns regarding agreements to refuse to deal, it cannot guarantee that its

members individually will decide to accept a payer’s contract offer, or that payers choosing not to

contract for TriState’s proposed program will be able to secure an adequate physician network

through such individual dealings, or obtain those services at prices that are not above marketdetermined levels as a result of the physicians’ interaction through the joint venture.57

A payer’s inability to obtain an adequate provider network through individual contracts, by itself,

normally would not raise antitrust concerns where it was clear that this was the result of

individual decisions by each provider as to the terms on which the provider was willing to deal

with a payer. In the present circumstance, however, with TriState negotiating collectively on

behalf of all of its members, and with TriState physicians representing a very significant

percentage of both the total number of physicians and of those in several specialty areas within

TriState’s primary service area, the inability of a payer to attract sufficient individual TriState

member physicians to contract outside of TriState likely would at least raise serious questions

requiring further investigation and clarification. Consequently, non-exclusivity in practice is of 58

critical importance to our conclusion that TriState’s proposed program is unlikely to create or

allow it to exercise market power on behalf of its member participants, or to result in

anticompetitive market effects. 
Letter to Christi J. Braun

April 13, 2009

Page 32

 Because of the ownership of numerous other related medical and health care providers and services by 59

Washington County Hospital’s parent organization – Washington County Health System, Inc. – Washington County

Hospital may have, or be able to exercise, some degree of market power regarding health care services beyond just

hospital services, as well. See n. 6, supra.

 Health Care Statements at Statement 9, § B.2.b. 60

 See discussion in Section IV.D.3, infra, re physician complaints regarding the proposed program.

61

b. Effect of Washington County Hospital’s Involvement on

Competition Regarding Physician Services, Hospital Services, 

and Related Services

As a physician-hospital organization, TriState and its proposed program involves the participation

by Washington County Hospital. One possible competitive concern about this involvement is

that the hospital – which is the only hospital in the primary service area served by TriState, and

therefore likely possesses a degree of market power regarding hospital services – could act in

ways that adversely affected competition for physician services in that area. A “monopoly” 59

hospital’s involvement also could affect competition for related services provided by the hospital,

but for which there are, or might be, competitive alternatives available. These types of

competitive concerns are identified in the Health Care Statements’ discussion of multiprovider

networks:

If there is only one hospital in the market, a multiprovider network by definition,

cannot reduce any existing competition among hospitals. Such a network could,

however, reduce competition among other providers, for example among

physicians in the network and, thereby, reduce the ability of payers to control the

costs of both physician and hospital services [for example, by aligning itself with a

large share of physicians in the market, a monopoly hospital may effectively be

able to insulate itself from payer efforts to control utilization of its services and

thus protect its monopoly profits]. It also could reduce competition between the

hospital and non-hospital providers of certain services, such as outpatient

surgery.60

The latter concern is one that you acknowledge may be present in TriState’s case. You note that

many private physicians who have been expanding into the provision of outpatient services and

seeking new business opportunities view the hospital as a competitor, and this is a particular

source of tension insofar as Washington County Health System, Inc., insists that the care for

which it pays for its health plan enrollees be provided within the Washington County Health

System, Inc., including Washington County Hospital.61

While you have assured us that Washington County Hospital will continue to contract directly

with payers independently of the proposed program where payers so prefer, this could be an area
Letter to Christi J. Braun

April 13, 2009

Page 33

 The Supreme Court, in Broadcast Music, alluded to this type of “spillover” concern through possible 62

anticompetitive agreements by the participants in the blanket license arrangement regarding the sale of their

individual compositions outside the joint venture, but found no evidence of the existence of any such agreements. 

441 U.S. at 23-24. 

 See discussion of “spillover effects” in Health Care Statements at Statement 8, § B.2. 63

of serious concern if the providers’ relationship through TriState were to be used strategically to

benefit either the physician participants or the hospital by reducing or eliminating competition

that otherwise would exist in the absence of the participants’ agreement through the joint venture. 

Despite these concerns, it appears that if TriState operates as it has proposed, payers unwilling to

contract jointly with physicians through TriState nevertheless should be able to deal individually,

or perhaps through other regional networks, in order to obtain the services of some or all of

TriState’s physicians and hospital member at rates that are not artificially elevated due to the

providers’ coming together through the proposed program. If so, it is not apparent how TriState’s

proposed program would facilitate it or its physician members attaining or exercising market

power or otherwise having anticompetitive effects in the market for physician services.

Likewise, it is not apparent how TriState’s proposed program would enhance Washington County

Health System, Inc.’s already existing leverage to insist that patients covered under its employee

health benefits program be treated within its own system, a current policy that predates the

proposed program. Consequently, it is not clear that its participation in the proposed program is

likely to harm competition or increase Washington County Health System, Inc.’s, market power

beyond that which it already possesses.

Should it, however, become apparent that TriState and its physician members in fact are not

operating on a non-exclusive basis, that payers are unable to obtain access to physician services

needed for their programs outside of TriState and at market-determined rates, or that TriState is

being used strategically to undermine actual or potential competition for services provided by

Washington County Health System, Inc., our initial view of TriState’s market power and the

proposed program’s likely competitive effects would require reassessment. Under those

circumstances, we might rescind this advisory opinion, and might recommend that the

Commission institute appropriate law enforcement activity to remedy any anticompetitive

conduct. 

2. “Spillover” Price Effects

Another area of potential concern with a physician network relates to possible “spillover” effects

on pricing by member physicians of their medical services sold outside the network. The 62

competitive analysis of a network considers whether the arrangement is likely to facilitate

collusion, either overt or tacit, regarding activities by the participants outside the network. For 63

example, agreement by TriState physicians as to the fees they will charge outside of TriState, or
Letter to Christi J. Braun

April 13, 2009

Page 34

 In discussing possible anticompetitive “spillover” effects, the Health Care Statements observe that “a 64

network that uses an outside agent to collect and analyze fee data from physicians for use in developing the

network’s fee schedule, and avoids the sharing of such sensitive information among the network’s physician

participants, may reduce concerns that the information could be used by the network’s physician participants to set

prices for services they provide outside the network.” See Statement 8 at § B.2. While not technically an “outside

agent,” TriState’s proposed use of non-physician staff to survey its physicians, coupled with its other precautions to

prevent that information from being conveyed to the physicians, may be adequate to achieve essentially the same

result, if the proposed protections are adhered to rigorously.

any agreement only to deal with payers outside of TriState on collectively-determined terms,

would raise antitrust concerns. We therefore would have serious concerns if the proposed

program’s operation facilitated any such agreements among its physicians in selling their services

outside of TriState’s proposed program. 

TriState says that it will “take steps to prevent any anticompetitive spillover.” Specifically,

TriState “will limit its members’ access to competitively sensitive information;” “will provide

antitrust counseling to members of the committees responsible for dealing with competitively

sensitive information, and antitrust guidelines to its members;” and “will require all board and

committee members to sign confidentiality agreements and will use those agreements to enforce

its confidentiality policy, which prohibits the disclosure of competitively sensitive information.” 

When developing its fee schedule, a non-physician TriState staff person will survey the members’

practices, and only non-physician staff will see actual physician prices. After aggregating this

64

information, the staff will destroy the information records from individual practices. Once a

contract is in place, physicians overseeing the program’s operation will “have access only to cost,

not pricing, information as they perform utilization, quality, and cost-effectiveness reviews. 

TriState will make every effort to limit the competitively sensitive information reviewed by its

committees.” Finally, TriState’s committee and board members “will receive antitrust counseling

to keep competitively sensitive information confidential, not to use TriState’s information for any

business they conduct outside TriState, and not to discuss or exchange their own prices or

competitive terms.” Any board or committee member who breaches a signed confidentiality

agreement will be removed from the committee or board. 

One possible type of spillover effect that is not dependent on sharing of competitively sensitive

information among competing physicians is that TriState physicians individually might seek to

charge the potentially higher prices they receive for their services through the jointly negotiated

contracts under the proposed program even when providing services outside of that program, 

without the quality and efficiency enhancements provided through the program’s integrative

aspects. This form of spillover would involve individual member physicians using the

information they each necessarily would obtain about the program’s negotiated reimbursement

levels for their individual services (as evidenced by their payments under the program) in dealing

with payers outside of the program. The concern would be that this information could influence

the prices at which the physicians would offer their services outside the program, and potentially

could allow some TriState physicians, particularly those practicing in specialty areas where there

are few alternative providers in the area, to obtain higher fees from payers.
Letter to Christi J. Braun

April 13, 2009

Page 35

While higher prices certainly are a concern, physicians generally know the payment levels they

receive from various payers for their individual services, and presumably price their services as

the market permits (or demands, in the case of certain government programs). Having

information on their individual payment levels from payers under the proposed program would be

no different from the type of information that they currently have from all other payers under all

programs in which they participate. Payers would remain free to accept or reject those terms to

the same extent that they currently are able, and any ability of particular TriState physicians to

individually obtain higher fees outside of TriState would appear to be the result of supply and

demand or other factors unrelated to TriState’s operation. However, we would be greatly

concerned if activity in the market suggested the possibility of coordinated interaction – either

explicit or tacit – among TriState physicians regarding their dealings outside of TriState. This

could become apparent if payers were unable to contract with physicians outside of TriState at

market rates, which presumably would be lower than the TriState rates, since the latter would be

based on the additional integrated systems, services, and value that the program promises to

provide. 

3. Competitive Concerns Expressed by Some Area Physicians

We received several letters from physicians who participate in TriState’s existing programs, but

who expressed concern that if TriState’s proposed program were to receive a favorable opinion

and proceed to operate, it would allow Washington County Hospital Association and its

affiliates/subsidiaries “to gain such a great market share or monopoly on the privately insured

patients of Western Maryland that all other competition would be effectively eliminated.” The

proposed program, they asserted, would create

great potential for the PHO [i.e., TriState to] . . . control the majority of private

insurance eligible patients in [the] . . . region thus leading to marked decrease in

competition, the potential manipulation of reimbursement fees to favor [the

hospital and its subsidiaries] . . . with the potential reduction in appropriate

physician fees and the inability of physicians to adequately respond to these

reductions due to the monopoly situation that would be created. This would

certainly result in the diminution of services to the . . . people of the Washington

County area, less efficient and less prompt service.

The letters and other accompanying memoranda submitted by the physicians raising concerns did

not, however, explain how operation of TriState’s proposed program would have these effects. 

As best we can ascertain from the submission, these physicians are concerned about the degree of

market power they believe is already possessed by Washington County Hospital Association

through operation of its subsidiaries, Washington County Hospital, TriState, and Antietam Health

Services, and fear that TriState’s proposed program would add to Washington County Hospital

Association’s market power, to the disadvantage of physicians who do not affiliate with

Washington County Hospital Association and its programs. The materials they submitted also
Letter to Christi J. Braun

April 13, 2009

Page 36

 To the extent that Washington County Hospital Association, including its parent organization, subsidiaries, 

65

and affiliates, already may have market power or be a monopolist within a relevant geographic and product market,

any activity by it to increase or maintain such market power by means other than competition on the merits –

including through strategic use of its participation in TriState and its proposed program – could raise antitrust

concerns.

 See n. 52, supra. 

66

indicate a concern that Washington County Hospital Association will use its market power to

essentially require use by all area physicians of Washington County Hospital Association’s health

care facilities and capabilities, thereby making it impossible for independent practices to establish

or successfully operate alternative outpatient services. 

It is not evident, nor do the physicians’ letters explain, how operation of TriState’s proposed

program would increase any market power that Washington County Hospital Association may

already have due to its current position as the only hospital in Washington County or its

ownership of certain primary care and other physician practices in the region. TriState’s

commitment to non-exclusive contracting with payers under the proposed program should allow

payers to deal with any area providers, on an individual basis and without going through TriState,

should the payers prefer to do so. Likewise, TriState has stated that access to hospital services

from Washington County Hospital Association will not be tied to, or conditioned on, the purchase

of physician services through TriState.

While it therefore is not apparent how the concerns expressed by these physicians would result

from the proposed program or Washington County Hospital Association’s involvement, as we

have stated generally regarding the program, we would be greatly concerned if the program or the

hospital’s involvement somehow were to be used strategically, in order to increase Washington

County Hospital Association’s power in any area of the health care services market, or to

otherwise disadvantage competitors or unfairly foreclose competition that otherwise might exist

or develop in the market. This could be of particular concern given that TriState physicians 65

comprise 64 percent of Washington County Hospital’s medical staff, and half or more of the

physicians in a large number of specialities with admitting privileges at the hospital.66

 

V. Conclusion

TriState’s proposed program, while still in the relatively early stages of development in certain

respects, nevertheless appears to involve substantial integration by its physician participants that

has the potential to result in the achievement of significant efficiencies that may benefit

consumers if it is implemented as you have described. It also appears that TriState’s joint

negotiation of contracts, including price terms, with payers on behalf of its physician members

who will be providing medical services to the payers’ enrollees under those contracts is

subordinate and reasonably related to TriState’s members’ potentially procompetitive integration
Letter to Christi J. Braun

April 13, 2009

Page 37

 In Broadcast Music the Supreme Court observed that per se condemnation of apparently anticompetitive

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conduct first requires an inquiry focusing on “whether the practice facially appears to be one that would always or

almost always tend to restrict competition and decrease output . . . or instead one designed to ‘increase economic

efficiency and render markets more, rather than less, competitive’.” 441 U.S. at 19-20 (quoting United States v.

United States Gypsum Co., 438 U.S. 422, 441 n. 16 (1978)). 

through the proposed program, and appears reasonably necessary to achieve the potential

efficiencies of that program.

Because of the procompetitive potential of the proposed program, the apparent ancillarity of its

joint contracting to furthering achievement of the program’s potential efficiencies, and the

indications that, if operated as you have proposed, TriState is unlikely to be able to attain,

increase, or exercise market power for itself or its participants as a result of implementing the

proposed program, we do not believe that the proposed program’s operation should be summarily

condemned ab initio under prevailing antitrust law standards. We therefore would not 67

recommend that the Commission challenge TriState’s proposed program unless it became

apparent that TriState in fact was able to increase or exercise its participants’ market power, or

otherwise have an anticompetitive effect in a relevant market. Because of TriState’s

interrelationship with Washington County Hospital Association, we also would be concerned if

TriState or the proposed program, were used in a way that unfairly eliminated or restricted

competition for the services provided by Washington County Hospital Association and its

subsidiaries, divisions, or affiliates.

This letter sets out the views of the staff of the Bureau of Competition, as authorized by the

Commission’s Rules of Practice. Under Commission Rule § 1.3(c), 16 C.F.R. § 1.3(c), the

Commission is not bound by this staff opinion, and reserves the right to rescind it at a later time. 

In addition, this office retains the right to reconsider the questions involved and, with notice to the

requesting party, to rescind or revoke the opinion if implementation of the proposed program

results in substantial anticompetitive effects, if the program is used for improper purposes, if facts

change significantly, or if it otherwise would be in the public interest to do so.

Sincerely,

Markus H. Meier

Assistant Director