Statements of Antitrust 

Enforcement Policy 

in Health Care 

Issued by the 

U.S. Department of Justice 

and the 

Federal Trade Commission 

August 1996 
 1 

TABLE OF CONTENTS 

Introduction ........................ 

Statement 1 - Mergers Among Hospitals ............ 8 

Statement 2 - Hospital Joint Ventures Involving 

High Technology Or Other Expensive 

Health Care Equipment . . . . . . . . . . . . 12 

Statement 3 - Hospital Joint Ventures Involving

 Specialized Clinical Or Other Expensive

 Health Care Services . . . . . . . . . . . . . 31 

Statement 4 - Providers' Collective Provision Of 

Non-Fee-Related Information To Purchasers

 Of Health Care Services . . . . . . . . . . . 40 

Statement 5 - Providers' Collective Provision Of 

Fee-Related Information To Purchasers Of 

Health Care Services . . . . . . . . . . . . . 43 

Statement 6 - Provider Participation In Exchanges Of 

Price And Cost Information . . . . . . . . . . 49 

Statement 7 - Joint Purchasing Arrangements Among Health

 Care Providers . . . . . . . . . . . . . . . . 53 

Statement 8 - Physician Network Joint Ventures . . . . . . . 61 

Statement 9 - Multiprovider Networks . . . . . . . . . . . . 106 
DEPARTMENT OF JUSTICE AND FEDERAL TRADE 

COMMISSION STATEMENTS OF ANTITRUST ENFORCEMENT 

POLICY IN HEALTH CARE 

INTRODUCTION 

In September 1993, the Department of Justice and the Federal 

Trade Commission (the "Agencies") issued six statements of their 

antitrust enforcement policies regarding mergers and various 

joint activities in the health care area. The six policy 

statements addressed: (1) hospital mergers; (2) hospital joint 

ventures involving high-technology or other expensive medical 

equipment; (3) physicians' provision of information to purchasers 

of health care services; (4) hospital participation in exchanges 

of price and cost information; (5) health care providers’ joint 

purchasing arrangements; and (6) physician network joint 

ventures. The Agencies also committed to issuing expedited 

Department of Justice business reviews and Federal Trade 

Commission advisory opinions in response to requests for 

antitrust guidance on specific proposed conduct involving the 

health care industry. 

The 1993 policy statements and expedited specific Agency 

guidance were designed to advise the health care community in a 

time of tremendous change, and to address, as completely as 

possible, the problem of uncertainty concerning the Agencies’ 

enforcement policy that some had said might deter mergers, joint 

ventures, or other activities that could lower health care costs. 

Sound antitrust enforcement, of course, continued to protect 

consumers against anticompetitive activities. 
When the Agencies issued the 1993 health care antitrust 

enforcement policy statements, they recognized that additional 

guidance might be desirable in the areas covered by those 

statements as well as in other health care areas, and committed 

to issuing revised and additional policy statements as warranted. 

In light of the comments the Agencies received on the 1993 

statements and the Agencies’ own experience, the Agencies revised 

and expanded the health care antitrust enforcement policy 

statements in September 1994. The 1994 statements, which 

superseded the 1993 statements, added new statements addressing 

hospital joint ventures involving specialized clinical or other 

expensive health care services, providers' collective provision 

of fee-related information to purchasers of health care services, 

and analytical principles relating to a broad range of health 

care provider networks (termed “multiprovider networks”), and 

expanded the antitrust "safety zones" for several other 

statements. 

Since issuance of the 1994 statements, health care markets 

have continued to evolve in response to consumer demand and 

competition in the marketplace. New arrangements and variations 

on existing arrangements involving joint activity by health care 

providers continue to emerge to meet consumers', purchasers', and 

payers' desire for more efficient delivery of high quality health 

care services. During this period, the Agencies have gained 

additional experience with arrangements involving joint provider 

activity. As a result of these developments, the Agencies have 

2 
decided to amplify the enforcement policy statement on physician 

network joint ventures and the more general statement on 

multiprovider networks. 

In these revised statements, the Agencies continue to analyze 

all types of health care provider networks under general 

antitrust principles. These principles are sufficiently flexible 

to take into account the particular characteristics of health 

care markets and the rapid changes that are occurring in those 

markets. The Agencies emphasize that it is not their intent to 

treat such networks either more strictly or more leniently than 

joint ventures in other industries, or to favor any particular 

procompetitive organization or structure of health care delivery 

over other forms that consumers may desire. Rather, their goal 

is to ensure a competitive marketplace in which consumers will 

have the benefit of high quality, cost-effective health care and 

a wide range of choices, including new provider-controlled 

networks that expand consumer choice and increase competition. 

The revisions to the statements on physician network joint 

ventures and multiprovider networks are summarized below. In 

addition to these revisions, various changes have been made to 

the language of both statements to improve their clarity. No 

revisions have been made to any of the other statements. 

Physician Network Joint Ventures 

The revised statement on physician network joint ventures 

provides an expanded discussion of the antitrust principles that 

apply to such ventures. The revisions focus on the analysis of 

3 
networks that fall outside the safety zones contained in the 

existing statement, particularly those networks that do not 

involve the sharing of substantial financial risk by their 

physician participants. The revised statement explains that 

where physicians' integration through the network is likely to 

produce significant efficiencies, any agreements on price 

reasonably necessary to accomplish the venture’s procompetitive 

benefits will be analyzed under the rule of reason. 

The revised statement adds three hypothetical examples to 

further illustrate the application of these principles: (1) a 

physician network joint venture that does not involve the sharing 

of substantial financial risk, but receives rule of reason 

treatment due to the extensive integration among its physician 

participants; (2) a network that involves both risk-sharing and 

non-risk-sharing activities, and receives rule of reason 

treatment; and (3) a network that involves little or no 

integration among its physician participants, and is per se 

illegal. 

The safety zones for physician network joint ventures remain 

unchanged, but the revised statement identifies additional types 

of financial risk-sharing arrangements that can qualify a network 

for the safety zones. It also further emphasizes two points 

previously made in the 1994 statements. First, the enumeration 

in the statements of particular examples of substantial financial 

risk sharing does not foreclose consideration of other 

arrangements through which physicians may share substantial 

4 
financial risk. Second, a physician network that falls outside 

the safety zones is not necessarily anticompetitive. 

Multiprovider Networks 

In 1994, the Agencies issued a new statement on multiprovider 

health care networks that described the general antitrust 

analysis of such networks. The revised statement on 

multiprovider networks emphasizes that it is intended to 

articulate general principles relating to a wide range of health 

care provider networks. Many of the revisions to this statement 

reflect changes made to the revised statement on physician 

network joint ventures. In addition, four hypothetical examples 

involving PHOs ("physician-hospital organizations"), including 

one involving “messenger model” arrangements, have been added. 

Safety Zones and Hypothetical Examples 

Most of the nine statements give health care providers 

guidance in the form of antitrust safety zones, which describe 

conduct that the Agencies will not challenge under the antitrust 

laws, absent extraordinary circumstances. The Agencies are aware 

that some parties have interpreted the safety zones as defining 

the limits of joint conduct that is permissible under the 

antitrust laws. This view is incorrect. The inclusion of 

certain conduct within the antitrust safety zones does not imply 

that conduct falling outside the safety zones is likely to be 

challenged by the Agencies. Antitrust analysis is inherently 

fact-intensive. The safety zones are designed to require 

5 
consideration of only a few factors that are relatively easy to 

apply, and to provide the Agencies with a high degree of 

confidence that arrangements falling within them are unlikely to 

raise substantial competitive concerns. Thus, the safety zones 

encompass only a subset of provider arrangements that the 

Agencies are unlikely to challenge under the antitrust laws. The 

statements outline the analysis the Agencies will use to review 

conduct that falls outside the safety zones. 

Likewise, the statements' hypothetical examples concluding 

that the Agencies would not challenge the particular arrangement 

do not mean that conduct varying from the examples is likely to 

be challenged by the Agencies. The hypothetical examples are 

designed to illustrate how the statements' general principles 

apply to specific situations. Interested parties should examine 

the business review letters issued by the Department of Justice 

and the advisory opinions issued by the Federal Trade Commission 

and its staff for additional guidance on the application and 

interpretation of these statements. Copies of those letters and 

opinions and summaries of the letters and opinions are available 

from the Agencies at the mailing and Internet addresses listed at 

the end of the statements. 

The statements also set forth the Department of Justice's 

business review procedure and the Federal Trade Commission's 

advisory opinion procedure under which the health care community 

can obtain the Agencies' antitrust enforcement intentions 

regarding specific proposed conduct on an expedited basis. The 

6 
statements continue the commitment of the Agencies to respond to 

requests for business reviews or advisory opinions from the 

health care community no later than 90 days after all necessary 

information is received regarding any matter addressed in the 

statements, except requests relating to hospital mergers outside 

the antitrust safety zone and multiprovider networks. The 

Agencies also will respond to business review or advisory opinion 

requests regarding multiprovider networks or other non-merger 

health care matters within 120 days after all necessary 

information is received. The Agencies intend to work closely 

with persons making requests to clarify what information is 

necessary and to provide guidance throughout the process. The 

Agencies continue this commitment to expedited review in an 

effort to reduce antitrust uncertainty for the health care 

industry in what the Agencies recognize is a time of fundamental 

change. 

The Agencies recognize the importance of antitrust guidance 

in evolving health care contexts. Consequently, the Agencies 

continue their commitment to issue additional guidance as 

warranted. 

7 
1. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL 

TRADE COMMISSION ENFORCEMENT POLICY 

ON MERGERS AMONG HOSPITALS 

Introduction 

Most hospital mergers and acquisitions ("mergers") do not 

present competitive concerns. While careful analysis may be 

necessary to determine the likely competitive effect of a 

particular hospital merger, the competitive effect of many 

hospital mergers is relatively easy to assess. This statement 

sets forth an antitrust safety zone for certain mergers in light 

of the Agencies' extensive experience analyzing hospital 

mergers. Mergers that fall within the antitrust safety zone 

will not be challenged by the Agencies under the antitrust laws, 

absent extraordinary circumstances.1 This policy statement also 

briefly describes the Agencies' antitrust analysis of hospital 

mergers that fall outside the antitrust safety zone. 

A. Antitrust Safety Zone: Mergers Of Hospitals That 

Will Not Be Challenged, Absent Extraordinary Circumstances, 

By The Agencies 

The Agencies will not challenge any merger between two 

general acute-care hospitals where one of the hospitals (1) has 

an average of fewer than 100 licensed beds over the three most 

recent years, and (2) has an average daily inpatient census of 

1

 The Agencies are confident that conduct falling within the 

antitrust safety zones contained in these policy statements is 

very unlikely to raise competitive concerns. Accordingly, the 

Agencies anticipate that extraordinary circumstances warranting a 

challenge to such conduct will be rare. 

8 
fewer than 40 patients over the three most recent years, absent 

extraordinary circumstances. This antitrust safety zone will 

not apply if that hospital is less than 5 years old. 

The Agencies recognize that in some cases a general acute 

care hospital with fewer than 100 licensed beds and an average 

daily inpatient census of fewer than 40 patients will be the 

only hospital in a relevant market. As such, the hospital does 

not compete in any significant way with other hospitals. 

Accordingly, mergers involving such hospitals are unlikely to 

reduce competition substantially. 

The Agencies also recognize that many general acute care 

hospitals, especially rural hospitals, with fewer than 100 

licensed beds and an average daily inpatient census of fewer than 

40 patients are unlikely to achieve the efficiencies that larger 

hospitals enjoy. Some of those cost-saving efficiencies may be 

realized, however, through a merger with another hospital. 

B. The Agencies' Analysis Of Hospital Mergers That Fall Outside 

The Antitrust Safety Zone 

Hospital mergers that fall outside the antitrust safety zone 

are not necessarily anticompetitive, and may be procompetitive. 

The Agencies' analysis of hospital mergers follows the five 

steps set forth in the Department of Justice/ Federal Trade 

Commission 1992 Horizontal Merger Guidelines. 

Applying the analytical framework of the Merger Guidelines 

to particular facts of specific hospital mergers, the Agencies 

often have concluded that an investigated hospital merger will 

9 
not result in a substantial lessening of competition in 

situations where market concentration might otherwise raise an 

inference of anticompetitive effects. Such situations include 

transactions where the Agencies found that: (1) the merger would 

not increase the likelihood of the exercise of market power 

either because of the existence post-merger of strong 

competitors or because the merging hospitals were sufficiently 

differentiated; (2) the merger would allow the hospitals to 

realize significant cost savings that could not otherwise be 

realized; or (3) the merger would eliminate a hospital that 

likely would fail with its assets exiting the market. 

Antitrust challenges to hospital mergers are relatively rare. 

Of the hundreds of hospital mergers in the United States since 

1987, the Agencies have challenged only a handful, and in several 

cases sought relief only as to part of the transaction. Most 

reviews of hospital mergers conducted by the Agencies are 

concluded within one month. 

*** 

If hospitals are considering mergers that appear to fall 

within the antitrust safety zone and believe they need 

additional certainty regarding the legality of their conduct 

under the antitrust laws, they can take advantage of the 

Department's business review procedure (28 C.F.R. § 50.6 (1992)) 

or the Federal Trade Commission's advisory opinion procedure (16 

C.F.R. §§ 1.1-1.4 (1993)). The Agencies will respond to 

business review or advisory opinion requests on behalf of 

10 
hospitals considering mergers that appear to fall within the 

antitrust safety zone within 90 days after all necessary 

information is submitted. 

11 
2. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL 

TRADE COMMISSION ENFORCEMENT POLICY 

ON HOSPITAL JOINT VENTURES INVOLVING 

HIGH-TECHNOLOGY OR OTHER EXPENSIVE 

HEALTH CARE EQUIPMENT 

Introduction 

Most hospital joint ventures to purchase or otherwise share 

the ownership cost of, operate, and market high-technology or 

other expensive health care equipment and related services do not 

create antitrust problems. In most cases, these collaborative 

activities create procompetitive efficiencies that benefit 

consumers. These efficiencies include the provision of services 

at a lower cost or the provision of services that would not have 

been provided absent the joint venture. Sound antitrust 

enforcement policy distinguishes those joint ventures that on 

balance benefit the public from those that may increase prices 

without providing a countervailing benefit, and seeks to prevent 

only those that are harmful to consumers. The Agencies have 

never challenged a joint venture among hospitals to purchase or 

otherwise share the ownership cost of, operate and market 

high-technology or other expensive health care equipment and 

related services. 

This statement of enforcement policy sets forth an antitrust 

safety zone that describes hospital high-technology or other 

expensive health care equipment joint ventures that will not be 

challenged, absent extraordinary circumstances, by the Agencies 

under the antitrust laws. It then describes the Agencies' 

antitrust analysis of hospital high-technology or other expensive 

12 
health care equipment joint ventures that fall outside the 

antitrust safety zone. Finally, this statement includes examples 

of its application to hospital high-technology or other expensive 

health care equipment joint ventures. 

A. Antitrust Safety Zone: Hospital High-Technology Joint 

Ventures That Will Not Be Challenged, Absent Extraordinary 

Circumstances, By The Agencies 

The Agencies will not challenge under the antitrust laws any 

joint venture among hospitals to purchase or otherwise share the 

ownership cost of, operate, and market the related services of, 

high-technology or other expensive health care equipment if the 

joint venture includes only the number of hospitals whose 

participation is needed to support the equipment, absent 

extraordinary circumstances.2 This applies to joint ventures 

involving purchases of new equipment as well as to joint ventures 

involving existing equipment.3 A joint venture that includes 

additional hospitals also will not be challenged if the 

additional hospitals could not support the equipment on their own 

2

 A hospital or group of hospitals will be considered able 

to support high-technology or other expensive health care 

equipment for purposes of this antitrust safety zone if it could 

recover the costs of owning, operating, and marketing the 

equipment over its useful life. If the joint venture is limited 

to ownership, only the ownership costs are relevant. If the 

joint venture is limited to owning and operating, only the owning 

and operating costs are relevant. 

3

 Consequently, the safety zone would apply in a situation 

in which one hospital had already purchased the health care 

equipment, but was not recovering the costs of the equipment and 

sought a joint venture with one or more hospitals in order to 

recover the costs of the equipment. 

13 
or through the formation of a competing joint venture, absent 

extraordinary circumstances. 

For example, if two hospitals are each unlikely to recover 

the cost of individually purchasing, operating, and marketing the 

services of a magnetic resonance imager (MRI) over its useful 

life, their joint venture with respect to the MRI would not be 

challenged by the Agencies. On the other hand, if the same two 

hospitals entered into a joint venture with a third hospital that 

independently could have purchased, operated, and marketed an MRI 

in a financially viable manner, the joint venture would not be in 

this antitrust safety zone. If, however, none of the three 

hospitals could have supported an MRI by itself, the Agencies 

would not challenge the joint venture.4 

Information necessary to determine whether the costs of a 

piece of high-technology health care equipment could be recovered 

over its useful life is normally available to any hospital or 

group of hospitals considering such a purchase. This information 

may include the cost of the equipment, its expected useful life, 

the minimum number of procedures that must be done to meet a 

machine's financial breakeven point, the expected number of 

procedures the equipment will be used for given the population 

4

 The antitrust safety zone described in this statement 

applies only to the joint venture and agreements reasonably 

necessary to the venture. The safety zone does not apply to or 

protect agreements made by participants in a joint venture that 

are related to a service not provided by the venture. For 

example, the antitrust safety zone that would apply to the MRI 

joint venture would not apply to protect an agreement among the 

hospitals with respect to charges for an overnight stay. 

14 
served by the joint venture and the expected price to be charged 

for the use of the equipment. Expected prices and costs should 

be confirmed by objective evidence, such as experiences in 

similar markets for similar technologies. 

B. The Agencies' Analysis Of Hospital High-Technology Or Other 

Expensive Health Care Equipment Joint Ventures That Fall 

Outside The Antitrust Safety Zone 

The Agencies recognize that joint ventures that fall outside 

the antitrust safety zone do not necessarily raise significant 

antitrust concerns. The Agencies will apply a rule of reason 

analysis in their antitrust review of such joint ventures.5 The 

objective of this analysis is to determine whether the joint 

venture may reduce competition substantially, and, if it might, 

whether it is likely to produce procompetitive efficiencies that 

outweigh its anticompetitive potential. This analysis is 

flexible and takes into account the nature and effect of the 

joint venture, the characteristics of the venture and of the 

hospital industry generally, and the reasons for, and purposes 

of, the venture. It also allows for consideration of 

5

 This statement assumes that the joint venture arrangement 

is not one that uses the joint venture label but is likely merely 

to restrict competition and decrease output. For example, two 

hospitals that independently operate profitable MRI services 

could not avoid charges of price fixing by labeling as a joint 

venture their plan to obtain higher prices through joint 

marketing of their existing MRI services. 

15 
efficiencies that will result from the venture. The steps 

involved in a rule of reason analysis are set forth below.6 

Step one: Define the relevant market. The rule of reason 

analysis first identifies what is produced through the joint 

venture. The relevant product and geographic markets are then 

properly defined. This process seeks to identify any other 

provider that could offer what patients or physicians generally 

would consider a good substitute for that provided by the joint 

venture. Thus, if a joint venture were to purchase and jointly 

operate and market the related services of an MRI, the relevant 

market would include all other MRIs in the area that are 

reasonable alternatives for the same patients, but would not 

include providers with only traditional X-ray equipment. 

Step two: Evaluate the competitive effects of the venture. 

This step begins with an analysis of the structure of the 

relevant market. If many providers would compete with the joint 

venture, competitive harm is unlikely and the analysis would 

continue with step four described below. 

6

 Many joint ventures that could provide substantial 

efficiencies also may present little likelihood of competitive 

harm. Where it is clear initially that any joint venture 

presents little likelihood of competitive harm, the step-by-step 

analysis described in the text below will not be necessary. For 

example, when two hospitals propose to merge existing expensive 

health care equipment into a joint venture in a properly defined 

market in which many other hospitals or other health care 

facilities operate the same equipment, such that the market will 

be unconcentrated, then the combination is unlikely to be 

anticompetitive and further analysis ordinarily would not be 

required. See Department of Justice/Federal Trade Commission 

1992 Horizontal Merger Guidelines. 

16 
If the structural analysis of the relevant market showed that 

the joint venture would eliminate an existing or potentially 

viable competing provider and that there were few competing 

providers of that service, or that cooperation in the joint 

venture market may spill over into a market in which the parties 

to the joint venture are competitors, it then would be necessary 

to assess the extent of the potential anticompetitive effects of 

the joint venture. In addition to the number and size of 

competing providers, factors that could restrain the ability of 

the joint venture to raise prices either unilaterally or through 

collusive agreements with other providers would include: 

(1) characteristics of the market that make anticompetitive 

coordination unlikely; (2) the likelihood that other providers 

would enter the market; and (3) the effects of government 

regulation. 

The extent to which the joint venture restricts competition 

among the hospitals participating in the venture is evaluated 

during this step. In some cases, a joint venture to purchase or 

otherwise share the cost of high-technology equipment may not 

substantially eliminate competition among the hospitals in 

providing the related service made possible by the equipment. 

For example, two hospitals might purchase a mobile MRI jointly, 

but operate and market MRI services separately. In such 

17 
instances, the potential impact on competition of the joint 

venture would be substantially reduced.7 

Step three: Evaluate the impact of procompetitive 

efficiencies. This step requires an examination of the joint 

venture's potential to create procompetitive efficiencies, and 

the balancing of these efficiencies against any potential 

anticompetitive effects. The greater the venture's likely 

anticompetitive effects, the greater must be the venture's likely 

efficiencies. In certain circumstances, efficiencies can be 

substantial because of the need to spread the cost of expensive 

equipment over a large number of patients and the potential for 

improvements in quality to occur as providers gain experience and 

skill from performing a larger number of procedures. 

Step four: Evaluate collateral agreements. This step 

examines whether the joint venture includes collateral agreements 

or conditions that unreasonably restrict competition and are 

unlikely to contribute significantly to the legitimate purposes 

of the joint venture. The Agencies will examine whether the 

collateral agreements are reasonably necessary to achieve the 

efficiencies sought by the joint venture. For example, if the 

participants in a joint venture formed to purchase a mobile 

lithotripter also agreed on the daily room rate to be charged 

lithotripsy patients who required overnight hospitalization, this 

7

 If steps one and two reveal no competitive concerns with 

the joint venture, step three is unnecessary, and the analysis 

continues with step four described below. 

18 
collateral agreement as to room rates would not be necessary to 

achieve the benefits of the lithotripter joint venture. Although 

the joint venture itself would be legal, the collateral agreement 

on hospital room rates would not be legal and would be subject to 

challenge. 

C. Examples Of Hospital High-Technology Joint Ventures 

The following are examples of hospital joint ventures that 

are unlikely to raise significant antitrust concerns. Each is 

intended to demonstrate an aspect of the analysis that would be 

used to evaluate the venture. 

1. New Equipment That Can Be Offered Only By A Joint 

Venture 

All the hospitals in a relevant market agree that they 

jointly will purchase, operate and market a helicopter to provide 

emergency transportation for patients. The community's need for 

the helicopter is not great enough to justify having more than 

one helicopter operating in the area and studies of similarly 

sized communities indicate that a second helicopter service could 

not be supported. This joint venture falls within the antitrust 

safety zone. It would make available a service that would not 

otherwise be available, and for which duplication would be 

inefficient. 

19 
2. Joint Venture To Purchase Expensive Equipment 

All five hospitals in a relevant market agree to jointly 

purchase a mobile health care device that provides a service for 

which consumers have no reasonable alternatives. The hospitals 

will share equally in the cost of maintaining the equipment, and 

the equipment will travel from one hospital to another and be 

available one day each week at each hospital. The hospitals' 

agreement contains no provisions for joint marketing of, and 

protects against exchanges of competitively sensitive information 

regarding, the equipment.8 There are also no limitations on the 

prices that each hospital will charge for use of the equipment, 

on the number of procedures that each hospital can perform, or on 

each hospital's ability to purchase the equipment on its own. 

Although any combination of two of the hospitals could afford to 

purchase the equipment and recover their costs within the 

equipment's useful life, patient volume from all five hospitals 

is required to maximize the efficient use of the equipment and 

lead to significant cost savings. In addition, patient demand 

would be satisfied by provision of the equipment one day each 

week at each hospital. The joint venture would result in higher 

use of the equipment, thus lowering the cost per patient and 

potentially improving quality. 

This joint venture does not fall within the antitrust safety 

zone because smaller groups of hospitals could afford to purchase 

8

 Examples of such information include prices and marketing 

plans. 

20 
and operate the equipment and recover their costs. Therefore, 

the joint venture would be analyzed under the rule of reason. 

The first step is to define the relevant market. In this 

example, the relevant market consists of the services provided by 

the equipment, and the five hospitals all potentially compete 

against each other for patients requiring this service. 

The second step in the analysis is to determine the 

competitive effects of the joint venture. Because the joint 

venture is likely to reduce the number of these health care 

devices in the market, there is a potential restraint on 

competition. The restraint would not be substantial, however, 

for several reasons. First, the joint venture is limited to the 

purchase of the equipment and would not eliminate competition 

among the hospitals in the provision of the services. The 

hospitals will market the services independently, and will not 

exchange competitively sensitive information. In addition, the 

venture does not preclude a hospital from purchasing another unit 

should the demand for these services increase. 

Because the joint venture raises some competitive concerns, 

however, it is necessary to examine the potential efficiencies 

associated with the venture. As noted above, by sharing the 

equipment among the five hospitals significant cost savings can 

be achieved. The joint venture would produce substantial 

efficiencies while providing access to high quality care. Thus, 

this joint venture would on balance benefit consumers since it 

would not lessen competition substantially, and it would allow 

21 
the hospitals to serve the community's need in a more efficient 

manner. Finally, in this example the joint venture does not 

involve any collateral agreements that raise competitive 

concerns. On these facts, the joint venture would not be 

challenged by the Agencies. 

3. Joint Venture Of Existing Expensive Equipment Where One 

Of The Hospitals In The Venture Already Owns The 

Equipment 

Metropolis has three hospitals and a population of 300,000. 

Mercy and University Hospitals each own and operate their own 

magnetic resonance imaging device ("MRI"). General Hospital does 

not. Three independent physician clinics also own and operate 

MRIs. All of the existing MRIs have similar capabilities. The 

acquisition of an MRI is not subject to review under a 

certificate of need law in the state in which Metropolis is 

located. 

Managed care plans have told General Hospital that, unless it 

can provide MRI services, it will be a less attractive 

contracting partner than the other two hospitals in town. The 

five existing MRIs are slightly underutilized -- that is, the 

average cost per scan could be reduced if utilization of the 

machines increased. There is insufficient demand in Metropolis 

for six fully-utilized MRIs. 

General has considered purchasing its own MRI so that it can 

compete on equal terms with Mercy and University Hospitals. 

However, it has decided based on its analysis of demand for MRI 

services and the cost of acquiring and operating the equipment 

22 
that it would be better to share the equipment with another 

hospital. General proposes forming a joint venture in which it 

will purchase a 50 percent share in Mercy's MRI, and the two 

hospitals will work out an arrangement by which each hospital has 

equal access to the MRI. Each hospital in the joint venture will 

independently market and set prices for those MRI services, and 

the joint venture agreement protects against exchanges of 

competitively sensitive information among the hospitals. There 

is no restriction on the ability of each hospital to purchase its 

own equipment. 

The proposed joint venture does not fall within the antitrust 

safety zone because General apparently could independently 

support the purchase and operation of its own MRI. Accordingly, 

the Agencies would analyze the joint venture under a rule of 

reason. 

The first step of the rule of reason analysis is defining the 

relevant product and geographic markets. Assuming there are no 

good substitutes for MRI services, the relevant product market in 

this case is MRI services. Most patients currently receiving MRI 

services are unwilling to travel outside of Metropolis for those 

services, so the relevant geographic market is Metropolis. 

Mercy, University, and the three physician clinics are already 

offering MRI services in this market. Because General intends to 

offer MRI services within the next year, even if there is no 

joint venture, it is viewed as a market participant. 

23 
The second step is determining the competitive impact of the 

joint venture. Absent the joint venture, there would have been 

six independent MRIs in the market. This raises some competitive 

concerns with the joint venture. The fact that the joint venture 

will not entail joint price setting or marketing of MRI services 

to purchasers reduces the venture's potential anticompetitive 

effect. The competitive analysis would also consider the 

likelihood of additional entry in the market. If, for example, 

another physician clinic is likely to purchase an MRI in the 

event that the price of MRI services were to increase, any 

anticompetitive effect from the joint venture becomes less 

likely. Entry may be more likely in Metropolis than other areas 

because new entrants are not required to obtain certificates of 

need. 

The third step of the analysis is assessing the likely 

efficiencies associated with the joint venture. The magnitude of 

any likely anticompetitive effects associated with the joint 

venture is important; the greater the venture's likely 

anticompetitive effects, the greater must be the venture's likely 

efficiencies. In this instance, the joint venture will avoid the 

costly duplication associated with General purchasing an MRI, and 

will allow Mercy to reduce the average cost of operating its MRI 

by increasing the number of procedures done. The competition 

between the Mercy/General venture and the other MRI providers in 

the market will provide some incentive for the joint venture to 

operate the MRI in as low-cost a manner as possible. Thus, there 

24 
are efficiencies associated with the joint venture that could not 

be achieved in a less restrictive manner. 

The final step of the analysis is determining whether the 

joint venture has any collateral agreements or conditions that 

reduce competition and are not reasonably necessary to achieve 

the efficiencies sought by the venture. For example, if the 

joint venture required managed care plans desiring MRI services 

to contract with both joint venture participants for those 

services, that condition would be viewed as anticompetitive and 

unnecessary to achieve the legitimate procompetitive goals of the 

joint venture. This example does not include any unnecessary 

collateral restraints. 

On balance, when weighing the likelihood that the joint 

venture will significantly reduce competition for these services 

against its potential to result in efficiencies, the Agencies 

would view this joint venture favorably under a rule of reason 

analysis. 

4. Joint Venture Of Existing Equipment Where Both Hospitals 

In The Venture Already Own The Equipment 

Valley Town has a population of 30,000 and is located in a 

valley surrounded by mountains. The closest urbanized area is 

over 75 miles away. There are two hospitals in Valley Town: 

Valley Medical Center and St. Mary's. Valley Medical Center 

offers a full range of primary and secondary services. St. 

Mary's offers primary and some secondary services. Although both 

hospitals have a CT scanner, Valley Medical Center's scanner is 

25 
more sophisticated. Because of its greater sophistication, 

Valley Medical Center's scanner is more expensive to operate, and 

can conduct fewer scans in a day. A physician clinic in Valley 

Town operates a third CT scanner that is comparable to St. Mary's 

scanner and is not fully utilized. 

Valley Medical Center has found that many of the scans that 

it conducts do not require the sophisticated features of its 

scanner. Because scans on its machine take so long, and so many 

patients require scans, Valley Medical Center also is experiencing significant scheduling problems. St. Mary's scanner, on 

the other hand, is underutilized, partially because many individuals go to Valley Medical Center because they need the more 

sophisticated scans that only Valley Medical Center's scanner can 

provide. Despite the underutilization of St. Mary's scanner, and 

the higher costs of Valley Medical Center's scanner, neither 

hospital has any intention of discontinuing its CT services. 

Valley Medical Center and St. Mary's are proposing a joint 

venture that would own and operate both hospitals' CT scanners. 

The two hospitals will then independently market and set the 

prices they charge for those services, and the joint venture 

agreement protects against exchanges of competitively sensitive 

information between the hospitals. There is no restriction on 

the ability of each hospital to purchase its own equipment. 

The proposed joint venture does not qualify under the 

Agencies' safety zone because the participating hospitals can 

independently support their own equipment. Accordingly, the 

26 
Agencies would analyze the joint venture under a rule of reason. 

The first step of the analysis is to determine the relevant 

product and geographic markets. As long as other diagnostic 

services such as conventional X-rays or MRI scans are not viewed 

as a good substitute for CT scans, the relevant product market is 

CT scans. If patients currently receiving CT scans in Valley 

Town would be unlikely to switch to providers offering CT scans 

outside of Valley Town in the event that the price of CT scans in 

Valley Town increased by a small but significant amount, the 

relevant geographic market is Valley Town. There are three 

participants in this relevant market: Valley Medical Center, St. 

Mary's, and the physician clinic. 

The second step of the analysis is determining the 

competitive effect of the joint venture. Because the joint 

venture does not entail joint pricing or marketing of CT 

services, the joint venture does not effectively reduce the 

number of market participants. This reduces the venture's 

potential anticompetitive effect. In fact, by increasing the 

scope of the CT services that each hospital can provide, the 

joint venture may increase competition between Valley Medical 

Center and St. Mary's since now both hospitals can provide 

sophisticated scans. Competitive concerns with this joint 

venture would be further ameliorated if other health care 

providers were likely to acquire CT scanners in response to a 

price increase following the formation of the joint venture. 

27 
The third step is assessing whether the efficiencies 

associated with the joint venture outweigh any anticompetitive 

effect associated with the joint venture. This joint venture 

will allow both hospitals to make either the sophisticated CT 

scanner or the less sophisticated, but less costly, CT scanner 

available to patients at those hospitals. 

Thus, the joint venture should increase quality of care by 

allowing for better utilization and scheduling of the equipment, 

while also reducing the cost of providing that care, thereby 

benefitting the community. The joint venture may also increase 

quality of care by making more capacity available to Valley 

Medical Center; while Valley Medical Center faced capacity 

constraints prior to the joint venture, it can now take advantage 

of St. Mary's underutilized CT scanner. The joint venture will 

also improve access by allowing patients requiring routine scans 

to be moved from the sophisticated scanner at Valley Medical 

Center to St. Mary's scanner where the scans can be performed 

more quickly. 

The last step of the analysis is to determine whether there 

are any collateral agreements or conditions associated with the 

joint venture that reduce competition and are not reasonably 

necessary to achieve the efficiencies sought by the joint 

venture. Assuming there are no such agreements or conditions, 

the Agencies would view this joint venture favorably under a rule 

of reason analysis. 

28 
As noted in the previous example, excluding price setting and 

marketing from the scope of the joint venture reduces the 

probability and magnitude of any anticompetitive effect of the 

joint venture, and thus reduces the likelihood that the Agencies 

will find the joint venture to be anticompetitive. If joint 

price setting and marketing were, however, a part of that joint 

venture, the Agencies would have to determine whether the cost 

savings and quality improvements associated with the joint 

venture offset the loss of competition between the two hospitals. 

Also, if neither of the hospitals in Valley Town had a CT 

scanner, and they proposed a similar joint venture for the 

purchase of two CT scanners, one sophisticated and one less 

sophisticated, the Agencies would be unlikely to view that joint 

venture as anticompetitive, even though each hospital could 

independently support the purchase of its own CT scanner. This 

conclusion would be based upon a rule of reason analysis that was 

virtually identical to the one described above. 

*** 

Hospitals that are considering high-technology or other 

expensive equipment joint ventures and are unsure of the legality 

of their conduct under the antitrust laws can take advantage of 

the Department's expedited business review procedure for joint 

ventures and information exchanges announced on December 1, 1992 

(58 Fed. Reg. 6132 (1993)) or the Federal Trade Commission's 

advisory opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 

(1993). The Agencies will respond to a business review or 

29 
advisory opinion request on behalf of hospitals that are 

considering a high-technology joint venture within 90 days after 

all necessary information is submitted. The Department's 

December 1, 1992 announcement contains specific guidance as to 

the information that should be submitted. 

30 
3. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL 

TRADE COMMISSION ENFORCEMENT POLICY 

ON HOSPITAL JOINT VENTURES INVOLVING SPECIALIZED 

CLINICAL OR OTHER EXPENSIVE HEALTH CARE SERVICES 

Introduction 

Most hospital joint ventures to provide specialized clinical 

or other expensive health care services do not create antitrust 

problems. The Agencies have never challenged an integrated joint 

venture among hospitals to provide a specialized clinical or 

other expensive health care service. 

Many hospitals wish to enter into joint ventures to offer 

these services because the development of these services involves 

investments -- such as the recruitment and training of 

specialized personnel -- that a single hospital may not be able 

to support. In many cases, these collaborative activities could 

create procompetitive efficiencies that benefit consumers, 

including the provision of services at a lower cost or the 

provision of a service that would not have been provided absent 

the joint venture. Sound antitrust enforcement policy 

distinguishes those joint ventures that on balance benefit the 

public from those that may increase prices without providing a 

countervailing benefit, and seeks to prevent only those that are 

harmful to consumers. 

This statement of enforcement policy sets forth the Agencies' 

antitrust analysis of joint ventures between hospitals to provide 

specialized clinical or other expensive health care services and 

includes an example of its application to such ventures. It does 

31 
not include a safety zone for such ventures since the Agencies 

believe that they must acquire more expertise in evaluating the 

cost of, demand for, and potential benefits from such joint 

ventures before they can articulate a meaningful safety zone. 

The absence of a safety zone for such collaborative activities 

does not imply that they create any greater antitrust risk than 

other types of collaborative activities. 

A. The Agencies' Analysis Of Hospital Joint Ventures Involving 

Specialized Clinical Or Other Expensive Health Care Services 

The Agencies apply a rule of reason analysis in their 

antitrust review of hospital joint ventures involving specialized 

clinical or other expensive health care services.9 The objective 

of this analysis is to determine whether the joint venture may 

reduce competition substantially, and if it might, whether it is 

likely to produce procompetitive efficiencies that outweigh its 

anticompetitive potential. This analysis is flexible and takes 

into account the nature and effect of the joint venture, the 

characteristics of the services involved and of the hospital 

industry generally, and the reasons for, and purposes of, the 

9

 This statement assumes that the joint venture is not likely 

merely to restrict competition and decrease output. For example, 

if two hospitals that both profitably provide open heart surgery 

and a burn unit simply agree without entering into an integrated 

joint venture that in the future each of the services will be 

offered exclusively at only one of the hospitals, the agreement 

would be viewed as an illegal market allocation. 

32 
venture. It also allows for consideration of efficiencies that 

will result from the venture. The steps involved in a rule of 

reason analysis are set forth below.10 

Step one: Define the relevant market. The rule of reason 

analysis first identifies the service that is produced through 

the joint venture. The relevant product and geographic markets 

that include the service are then properly defined. This process 

seeks to identify any other provider that could offer a service 

that patients or physicians generally would consider a good 

substitute for that provided by the joint venture. Thus, if a 

joint venture were to produce intensive care neonatology 

services, the relevant market would include only other neonatal 

intensive care nurseries that patients or physicians would view 

as reasonable alternatives. 

Step two: Evaluate the competitive effects of the venture. 

This step begins with an analysis of the structure of the 

relevant market. If many providers compete with the joint 

venture, competitive harm is unlikely and the analysis would 

continue with step four described below. 

If the structural analysis of the relevant market showed that 

the joint venture would eliminate an existing or potentially 

viable competing provider of a service and that there were few 

10 Many joint venturers that could provide substantial 

efficiencies also may present little likelihood of competitive 

harm. Where it is clear initially that any joint venture 

presents little likelihood of competitive harm, it will not be 

necessary to complete all steps in the analysis to conclude that 

the joint venture should not be challenged. See note 7, above. 

33 
competing providers of that service, or that cooperation in the 

joint venture market might spill over into a market in which the 

parties to the joint venture are competitors, it then would be 

necessary to assess the extent of the potential anticompetitive 

effects of the joint venture. In addition to the number and size 

of competing providers, factors that could restrain the ability 

of the joint venture to act anticompetitively either unilaterally 

or through collusive agreements with other providers would 

include: (1) characteristics of the market that make 

anticompetitive coordination unlikely; (2) the likelihood that 

others would enter the market; and (3) the effects of government 

regulation. 

The extent to which the joint venture restricts competition 

among the hospitals participating in the venture is evaluated 

during this step. In some cases, a joint venture to provide a 

specialized clinical or other expensive health care service may 

not substantially limit competition. For example, if the only 

two hospitals providing primary and secondary acute care 

inpatient services in a relevant geographic market for such 

services were to form a joint venture to provide a tertiary 

service, they would continue to compete on primary and secondary 

services. Because the geographic market for a tertiary service 

may in certain cases be larger than the geographic market for 

34 
primary or secondary services, the hospitals may also face 

substantial competition for the joint-ventured tertiary 

service.11 

Step three: Evaluate the impact of procompetitive 

efficiencies. This step requires an examination of the joint 

venture's potential to create procompetitive efficiencies, and 

the balancing of these efficiencies against any potential 

anticompetitive effects. The greater the venture's likely 

anticompetitive effects, the greater must be the venture's likely 

efficiencies. In certain circumstances, efficiencies can be 

substantial because of the need to spread the cost of the 

investment associated with the recruitment and training of 

personnel over a large number of patients and the potential for 

improvement in quality to occur as providers gain experience and 

skill from performing a larger number of procedures. In the case 

of certain specialized clinical services, such as open heart 

surgery, the joint venture may permit the program to generate 

sufficient patient volume to meet well-accepted minimum standards 

for assuring quality and patient safety. 

Step four: Evaluate collateral agreements. This step 

examines whether the joint venture includes collateral agreements 

or conditions that unreasonably restrict competition and are 

unlikely to contribute significantly to the legitimate purposes 

11 If steps one and two reveal no competitive concerns with 

the joint venture, step three is unnecessary, and the analysis 

continues with step four described below. 

35 
of the joint venture. The Agencies will examine whether the 

collateral agreements are reasonably necessary to achieve the 

efficiencies sought by the venture. For example, if the 

participants in a joint venture to provide highly sophisticated 

oncology services were to agree on the prices to be charged for 

all radiology services regardless of whether the services are 

provided to patients undergoing oncology radiation therapy, this 

collateral agreement as to radiology services for non-oncology 

patients would be unnecessary to achieve the benefits of the 

sophisticated oncology joint venture. Although the joint venture 

itself would be legal, the collateral agreement would not be 

legal and would be subject to challenge. 

B. Example -- Hospital Joint Venture For New Specialized 

Clinical Service Not Involving Purchase Of High-Technology Or 

Other Expensive Health Care Equipment 

Midvale has a population of about 75,000, and is 

geographically isolated in a rural part of its state. Midvale 

has two general acute care hospitals, Community Hospital and 

Religious Hospital, each of which performs a mix of basic 

primary, secondary, and some tertiary care services. The two 

hospitals have largely non-overlapping medical staffs. Neither 

hospital currently offers open-heart surgery services, nor has 

plans to do so on its own. Local residents, physicians, 

employers, and hospital managers all believe that Midvale has 

sufficient demand to support one local open-heart surgery unit. 

The two hospitals in Midvale propose a joint venture whereby 

they will share the costs of recruiting a cardiac surgery team 

36 
and establishing an open-heart surgery program, to be located at 

one of the hospitals. Patients will be referred to the program 

from both hospitals, who will share expenses and revenues of the 

program. The hospitals' agreement protects against exchanges of 

competitively sensitive information. 

As stated above, the Agencies would analyze such a joint 

venture under a rule of reason. The first step of the rule of 

reason analysis is defining the relevant product and geographic 

markets. The relevant product market in this case is open-heart 

surgery services, because there are no reasonable alternatives 

for patients needing such surgery. The relevant geographic 

market may be limited to Midvale. Although patients now travel 

to distant hospitals for open-heart surgery, it is significantly 

more costly for patients to obtain surgery from them than from a 

provider located in Midvale. Physicians, patients, and 

purchasers believe that after the open heart surgery program is 

operational, most Midvale residents will choose to receive these 

services locally. 

The second step is determining the competitive impact of the 

joint venture. Here, the joint venture does not eliminate any 

existing competition, because neither of the two hospitals 

previously was providing open-heart surgery. Nor does the joint 

venture eliminate any potential competition, because there is 

insufficient patient volume for more than one viable open-heart 

37 
surgery program. Thus, only one such program could exist in 

Midvale, regardless of whether it was established unilaterally or 

through a joint venture. 

Normally, the third step in the rule of reason analysis would 

be to assess the procompetitive effects of, and likely 

efficiencies associated with, the joint venture. In this 

instance, this step is unnecessary, since the analysis has 

concluded under step two that the joint venture will not result 

in any significant anticompetitive effects. 

The final step of the analysis is to determine whether the 

joint venture has any collateral agreements or conditions that 

reduce competition and are not reasonably necessary to achieve 

the efficiencies sought by the venture. The joint venture does 

not appear to involve any such agreements or conditions; it does 

not eliminate or reduce competition between the two hospitals for 

any other services, or impose any conditions on use of the openheart surgery program that would affect other competition. 

Because the joint venture described above is unlikely 

significantly to reduce competition among hospitals for openheart surgery services, and will in fact increase the services 

available to consumers, the Agencies would view this joint 

venture favorably under a rule of reason analysis. 

*** 

Hospitals that are considering specialized clinical or other 

expensive health care services joint ventures and are unsure of 

the legality of their conduct under the antitrust laws can take 

38 
advantage of the Department of Justice's expedited business 

review procedure announced on December 1, 1992 (58 Fed. Reg. 6132 

(1993)) or the Federal Trade Commission's advisory opinion 

procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies 

will respond to a business review or advisory opinion request on 

behalf of hospitals that are considering jointly providing such 

services within 90 days after all necessary information is 

submitted. The Department's December 1, 1992 announcement 

contains specific guidance as to the information that should be 

submitted. 

39 
4. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL

 TRADE COMMISSION ENFORCEMENT POLICY

 ON PROVIDERS' COLLECTIVE PROVISION OF 

NON-FEE-RELATED INFORMATION TO 

PURCHASERS OF HEALTH CARE SERVICES 

Introduction 

The collective provision of non-fee-related information by 

competing health care providers to a purchaser in an effort to 

influence the terms upon which the purchaser deals with the 

providers does not necessarily raise antitrust concerns. 

Generally, providers' collective provision of certain types of 

information to a purchaser is likely either to raise little risk 

of anticompetitive effects or to provide procompetitive benefits. 

This statement sets forth an antitrust safety zone that 

describes providers' collective provision of non-fee-related 

information that will not be challenged by the Agencies under the 

antitrust laws, absent extraordinary circumstances.12 It also 

describes conduct that is expressly excluded from the antitrust 

safety zone. 

12 This statement addresses only providers' collective 

activities. As a general proposition, providers acting 

individually may provide any information to any purchaser without 

incurring liability under federal antitrust law. This statement 

also does not address the collective provision of information 

through an integrated joint venture or the exchange of 

information that necessarily occurs among providers involved in 

legitimate joint venture activities. Those activities generally 

do not raise antitrust concerns. 

40 
A. Antitrust Safety Zone: Providers' Collective Provision Of 

Non-Fee-Related Information That Will Not Be Challenged, 

Absent Extraordinary Circumstances, By The Agencies 

Providers' collective provision of underlying medical data 

that may improve purchasers' resolution of issues relating to the 

mode, quality, or efficiency of treatment is unlikely to raise 

any significant antitrust concern and will not be challenged by 

the Agencies, absent extraordinary circumstances. Thus, the 

Agencies will not challenge, absent extraordinary circumstances, 

a medical society's collection of outcome data from its members 

about a particular procedure that they believe should be covered 

by a purchaser and the provision of such information to the 

purchaser. The Agencies also will not challenge, absent 

extraordinary circumstances, providers' development of suggested 

practice parameters--standards for patient management developed 

to assist providers in clinical decisionmaking--that also may 

provide useful information to patients, providers, and 

purchasers. Because providers' collective provision of such 

information poses little risk of restraining competition and may 

help in the development of protocols that increase quality and 

efficiency, the Agencies will not challenge such activity, absent 

extraordinary circumstances. 

In the course of providing underlying medical data, providers 

may collectively engage in discussions with purchasers about the 

scientific merit of that data. However, the antitrust safety 

zone excludes any attempt by providers to coerce a purchaser's 

decisionmaking by implying or threatening a boycott of any plan 

41 
that does not follow the providers' joint recommendation. 

Providers who collectively threaten to or actually refuse to deal 

with a purchaser because they object to the purchaser's 

administrative, clinical, or other terms governing the provision 

of services run a substantial antitrust risk. For example, 

providers' collective refusal to provide X-rays to a purchaser 

that seeks them before covering a particular treatment regimen 

would constitute an antitrust violation. Similarly, providers' 

collective attempt to force purchasers to adopt recommended 

practice parameters by threatening to or actually boycotting 

purchasers that refuse to accept their joint recommendation also 

would risk antitrust challenge. 

*** 

Competing providers who are considering jointly providing 

non-fee-related information to a purchaser and are unsure of the 

legality of their conduct under the antitrust laws can take 

advantage of the Department of Justice's expedited business 

review procedure announced on December 1, 1992 (58 Fed. Reg. 6132 

(1993)) or the Federal Trade Commission's advisory opinion 

procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies 

will respond to a business review or advisory opinion request on 

behalf of providers who are considering jointly providing such 

information within 90 days after all necessary information is 

submitted. The Department's December 1, 1992 announcement 

contains specific guidance as to the information that should be 

submitted. 

42 
5. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL 

TRADE COMMISSION ENFORCEMENT POLICY 

ON PROVIDERS' COLLECTIVE PROVISION 

OF FEE-RELATED INFORMATION TO 

PURCHASERS OF HEALTH CARE SERVICES 

Introduction 

The collective provision by competing health care providers 

to purchasers of health care services of factual information 

concerning the fees charged currently or in the past for the 

providers' services, and other factual information concerning the 

amounts, levels, or methods of fees or reimbursement, does not 

necessarily raise antitrust concerns. With reasonable 

safeguards, providers' collective provision of this type of 

factual information to a purchaser of health care services may 

provide procompetitive benefits and raise little risk of 

anticompetitive effects. 

This statement sets forth an antitrust safety zone that 

describes collective provision of fee-related information that 

will not be challenged by the Agencies under the antitrust laws, 

absent extraordinary circumstances.13 It also describes types of 

conduct that are expressly excluded from the antitrust safety 

13 This statement addresses only providers' collective 

activities. As a general proposition, providers acting 

individually may provide any information to any purchaser without 

incurring liability under federal antitrust law. This statement 

also does not address the collective provision of information 

through an integrated joint venture or the exchange of 

information that necessarily occurs among providers involved in 

legitimate joint venture activities. Those activities generally 

do not raise antitrust concerns. 

43 
zone, some clearly unlawful, and others that may be lawful 

depending on the circumstances. 

A. Antitrust Safety Zone: Providers' Collective Provision Of 

Fee-Related Information That Will Not Be Challenged, Absent 

Extraordinary Circumstances, By The Agencies 

Providers' collective provision to purchasers of health care 

services of factual information concerning the providers' current 

or historical fees or other aspects of reimbursement, such as 

discounts or alternative reimbursement methods accepted 

(including capitation arrangements, risk-withhold fee 

arrangements, or use of all-inclusive fees), is unlikely to raise 

significant antitrust concern and will not be challenged by the 

Agencies, absent extraordinary circumstances. Such factual 

information can help purchasers efficiently develop reimbursement 

terms to be offered to providers and may be useful to a purchaser 

when provided in response to a request from the purchaser or at 

the initiative of providers. 

In assembling information to be collectively provided to 

purchasers, providers need to be aware of the potential antitrust 

consequences of information exchanges among competitors. The 

principles expressed in the Agencies' statement on provider 

participation in exchanges of price and cost information are 

applicable in this context. Accordingly, in order to qualify for 

this safety zone, the collection of information to be provided to 

purchasers must satisfy the following conditions: 

44 
(1) the collection is managed by a third party (e.g., a 

purchaser, government agency, health care consultant, 

academic institution, or trade association); 

(2) although current fee-related information may be provided 

to purchasers, any information that is shared among or 

is available to the competing providers furnishing the 

data must be more than three months old; and 

(3) for any information that is available to the providers 

furnishing data, there are at least five providers 

reporting data upon which each disseminated statistic is 

based, no individual provider's data may represent more 

than 25 percent on a weighted basis of that statistic, 

and any information disseminated must be sufficiently 

aggregated such that it would not allow recipients to 

identify the prices charged by any individual provider. 

The conditions that must be met for an information exchange 

among providers to fall within the antitrust safety zone are 

intended to ensure that an exchange of price or cost data is not 

used by competing providers for discussion or coordination of 

provider prices or costs. They represent a careful balancing of 

a provider's individual interest in obtaining information useful 

in adjusting the prices it charges or the wages it pays in 

response to changing market conditions against the risk that the 

exchange of such information may permit competing providers to 

communicate with each other regarding a mutually acceptable level 

of prices for health care services or compensation for employees. 

B. The Agencies' Analysis Of Providers' Collective Provision Of 

Fee-Related Information That Falls Outside The Antitrust 

Safety Zone 

The safety zone set forth in this policy statement does not 

apply to collective negotiations between unintegrated providers 

and purchasers in contemplation or in furtherance of any 

45 
agreement among the providers on fees or other terms or aspects 

of reimbursement,14 or to any agreement among unintegrated 

providers to deal with purchasers only on agreed terms. 

Providers also may not collectively threaten, implicitly or 

explicitly, to engage in a boycott or similar conduct, or 

actually undertake such a boycott or conduct, to coerce any 

purchaser to accept collectively-determined fees or other terms 

or aspects of reimbursement. These types of conduct likely would 

violate the antitrust laws and, in many instances, might be per 

se illegal. 

Also excluded from the safety zone is providers' collective 

provision of information or views concerning prospective feerelated matters. In some circumstances, the collective provision 

of this type of fee-related information also may be helpful to a 

purchaser and, as long as independent decisions on whether to 

accept a purchaser's offer are truly preserved, may not raise 

antitrust concerns. However, in other circumstances, the 

collective provision of prospective fee-related information or 

views may evidence or facilitate an agreement on prices or other 

competitively significant terms by the competing providers. It 

also may exert a coercive effect on the purchaser by implying or 

threatening a collective refusal to deal on terms other than 

those proposed, or amount to an implied threat to boycott any 

plan that does not follow the providers' collective proposal. 

14 Whether communications between providers and purchasers 

will amount to negotiations depends on the nature and context of 

the communications, not solely the number of such communications. 

46 
The Agencies recognize the need carefully to distinguish 

possibly procompetitive collective provision of prospective feerelated information or views from anticompetitive situations that 

involve unlawful price agreements, boycott threats, refusals to 

deal except on collectively determined terms, collective 

negotiations, or conduct that signals or facilitates collective 

price terms. Therefore, the collective provision of such 

prospective fee-related information or views will be assessed on 

a case-by-case basis. In their case-by-case analysis, the 

Agencies will look at all the facts and circumstances surrounding 

the provision of the information, including, but not limited to, 

the nature of the information provided, the nature and extent of 

the communications among the providers and between the providers 

and the purchaser, the rationale for providing the information, 

and the nature of the market in which the information is 

provided. 

In addition, because the collective provision of prospective 

fee-related information and views can easily lead to or accompany 

unlawful collective negotiations, price agreements, or the other 

types of collective conduct noted above, providers need to be 

aware of the potential antitrust consequences of information 

exchanges among competitors in assembling information or views 

concerning prospective fee-related matters. Consequently, such 

protections as the use of a third party to manage the collection 

of information and views, and the adoption of mechanisms to 

assure that the information is not disseminated or used in a 

47 
manner that facilitates unlawful agreements or coordinated 

conduct by the providers, likely would reduce antitrust concerns. 

*** 

Competing providers who are considering collectively 

providing fee-related information to purchasers, and are unsure 

of the legality of their conduct under the antitrust laws, can 

take advantage of the Department of Justice's expedited business 

review procedure announced on December 1, 1992 (58 Fed. Reg. 6132 

(1993)) or the Federal Trade Commission's advisory opinion 

procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies 

will respond to a business review or advisory opinion request on 

behalf of providers who are considering collectively providing 

fee-related information within 90 days after all necessary 

information is submitted. The Department's December 1, 1992 

announcement contains specific guidance as to the information 

that should be submitted. 

48 
6. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL 

TRADE COMMISSION ENFORCEMENT POLICY

 ON PROVIDER PARTICIPATION IN EXCHANGES OF 

PRICE AND COST INFORMATION 

Introduction 

Participation by competing providers in surveys of prices 

for health care services, or surveys of salaries, wages or 

benefits of personnel, does not necessarily raise antitrust 

concerns. In fact, such surveys can have significant benefits 

for health care consumers. Providers can use information 

derived from price and compensation surveys to price their 

services more competitively and to offer compensation that 

attracts highly qualified personnel. Purchasers can use price 

survey information to make more informed decisions when buying 

health care services. Without appropriate safeguards, however, 

information exchanges among competing providers may facilitate 

collusion or otherwise reduce competition on prices or 

compensation, resulting in increased prices, or reduced quality 

and availability of health care services. A collusive 

restriction on the compensation paid to health care employees, 

for example, could adversely affect the availability of health 

care personnel. 

This statement sets forth an antitrust safety zone that 

describes exchanges of price and cost information among 

providers that will not be challenged by the Agencies under the 

antitrust laws, absent extraordinary circumstances. It also 

49 
 

 

briefly describes the Agencies' antitrust analysis of information 

exchanges that fall outside the antitrust safety zone. 

A. Antitrust Safety Zone: Exchanges Of Price And Cost 

Information Among Providers That Will Not Be Challenged, 

Absent Extraordinary Circumstances, By The Agencies 

The Agencies will not challenge, absent extraordinary 

circumstances, provider participation in written surveys of 

(a) prices for health care services,15 or (b) wages, salaries, or 

benefits of health care personnel, if the following conditions 

are satisfied: 

(1) the survey is managed by a third-party (e.g., a 

purchaser, government agency, health care consultant, 

academic institution, or trade association); 

(2) the information provided by survey participants is based 

on data more than 3 months old; and 

(3) there are at least five providers reporting data upon 

which each disseminated statistic is based, no 

individual provider's data represents more than 

25 percent on a weighted basis of that statistic, and 

any information disseminated is sufficiently aggregated 

such that it would not allow recipients to identify the 

prices charged or compensation paid by any particular 

provider. 

The conditions that must be met for an information exchange 

among providers to fall within the antitrust safety zone are 

intended to ensure that an exchange of price or cost data is not 

used by competing providers for discussion or coordination of 

provider prices or costs. They represent a careful balancing of 

a provider's individual interest in obtaining information useful 

15 The "prices" at which providers offer their services to 

purchasers can take many forms, including billed charges for 

individual services, discounts off billed charges, or per diem, 

capitated, or diagnosis related group rates. 

50 
in adjusting the prices it charges or the wages it pays in 

response to changing market conditions against the risk that the 

exchange of such information may permit competing providers to 

communicate with each other regarding a mutually acceptable level 

of prices for health care services or compensation for employees. 

B. The Agencies' Analysis of Provider Exchanges Of Information 

That Fall Outside The Antitrust Safety Zone 

Exchanges of price and cost information that fall outside 

the antitrust safety zone generally will be evaluated to 

determine whether the information exchange may have an 

anticompetitive effect that outweighs any procompetitive 

justification for the exchange. Depending on the circumstances, 

public, non-provider initiated surveys may not raise competitive 

concerns. Such surveys could allow purchasers to have useful 

information that they can use for procompetitive purposes. 

Exchanges of future prices for provider services or future 

compensation of employees are very likely to be considered 

anticompetitive. If an exchange among competing providers of 

price or cost information results in an agreement among 

competitors as to the prices for health care services or the 

wages to be paid to health care employees, that agreement will be 

considered unlawful per se. 

*** 

Competing providers that are considering participating in a 

survey of price or cost information and are unsure of the 

legality of their conduct under the antitrust laws can take 

51 
advantage of the Department's expedited business review procedure 

announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the 

Federal Trade Commission's advisory opinion procedure contained 

at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a 

business review or advisory opinion request on behalf of 

providers who are considering participating in a survey of price 

or cost information within 90 days after all necessary 

information is submitted. The Department's December 1, 1992 

announcement contains specific guidance as to the information 

that should be submitted. 

52 
7. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL 

TRADE COMMISSION ENFORCEMENT POLICY 

ON JOINT PURCHASING ARRANGEMENTS 

AMONG HEALTH CARE PROVIDERS 

Introduction 

Most joint purchasing arrangements among hospitals or other 

health care providers do not raise antitrust concerns. Such 

collaborative activities typically allow the participants to 

achieve efficiencies that will benefit consumers. Joint 

purchasing arrangements usually involve the purchase of a 

product or service used in providing the ultimate package of 

health care services or products sold by the participants. 

Examples include the purchase of laundry or food services by 

hospitals, the purchase of computer or data processing services 

by hospitals or other groups of providers, and the purchase of 

prescription drugs and other pharmaceutical products. Through 

such joint purchasing arrangements, the participants frequently 

can obtain volume discounts, reduce transaction costs, and have 

access to consulting advice that may not be available to each 

participant on its own. 

Joint purchasing arrangements are unlikely to raise 

antitrust concerns unless (1) the arrangement accounts for so 

large a portion of the purchases of a product or service that it 

can effectively exercise market power16 in the purchase of the 

product or service, or (2) the products or services being 

16 In the case of a purchaser, this is the power to drive the 

price of goods or services purchased below competitive levels. 

53 
 

 

purchased jointly account for so large a proportion of the total 

cost of the services being sold by the participants that the 

joint purchasing arrangement may facilitate price fixing or 

otherwise reduce competition. If neither factor is present, the 

joint purchasing arrangement will not present competitive 

17 concerns. 

This statement sets forth an antitrust safety zone that 

describes joint purchasing arrangements among health care 

providers that will not be challenged, absent extraordinary 

circumstances, by the Agencies under the antitrust laws. It also 

describes factors that mitigate any competitive concerns with 

joint purchasing arrangements that fall outside the antitrust 

safety zone.18 

A. Antitrust Safety Zone: Joint Purchasing Arrangements Among 

Health Care Providers That Will Not Be Challenged, Absent 

Extraordinary Circumstances, By The Agencies 

The Agencies will not challenge, absent extraordinary 

circumstances, any joint purchasing arrangement among health 

care providers where two conditions are present: (1) the 

purchases account for less than 35 percent of the total sales of 

17 An agreement among purchasers that simply fixes the price 

that each purchaser will pay or offer to pay for a product or 

service is not a legitimate joint purchasing arrangement and is a 

per se antitrust violation. Legitimate joint purchasing 

arrangements provide some integration of purchasing functions to 

achieve efficiencies. 

18 This statement applies to purchasing arrangements through 

which the participants acquire products or services for their own 

use, not arrangements in which the participants are jointly 

investing in equipment or providing a service. Joint ventures 

involving investment in equipment and the provision of services 

are discussed in separate policy statements. 

54 
the purchased product or service in the relevant market; and 

(2) the cost of the products and services purchased jointly 

accounts for less than 20 percent of the total revenues from all 

products or services sold by each competing participant in the 

joint purchasing arrangement. 

The first condition compares the purchases accounted for by 

a joint purchasing arrangement to the total purchases of the 

purchased product or service in the relevant market. Its purpose 

is to determine whether the joint purchasing arrangement might be 

able to drive down the price of the product or service being 

purchased below competitive levels. For example, a joint 

purchasing arrangement may account for all or most of the 

purchases of laundry services by hospitals in a particular 

market, but represent less than 35 percent of the purchases of 

all commercial laundry services in that market. Unless there 

are special costs that cannot be easily recovered associated 

with providing laundry services to hospitals, such a purchasing 

arrangement is not likely to force prices below competitive 

levels. The same principle applies to joint purchasing 

arrangements for food services, data processing, and many other 

products and services. 

The second condition addresses any possibility that a joint 

purchasing arrangement might result in standardized costs, thus 

facilitating price fixing or otherwise having anticompetitive 

effects. This condition applies only where some or all of the 

participants are direct competitors. For example, if a 

55 
nationwide purchasing cooperative limits its membership to one 

hospital in each geographic area, there is not likely to be any 

concern about reduction of competition among its members. Even 

where a purchasing arrangement's membership includes hospitals 

or other health care providers that compete with one another, 

the arrangement is not likely to facilitate collusion if the 

goods and services being purchased jointly account for a small 

fraction of the final price of the services provided by the 

participants. In the health care field, it may be difficult to 

determine the specific final service in which the jointly 

purchased products are used, as well as the price at which that 

final service is sold.19 Therefore, the Agencies will examine 

whether the cost of the products or services being purchased 

jointly accounts, in the aggregate, for less than 20 percent of 

the total revenues from all health care services of each 

competing participant. 

B. Factors Mitigating Competitive Concerns With Joint Purchasing 

Arrangements That Fall Outside The Antitrust Safety Zone 

Joint purchasing arrangements among hospitals or other 

health care providers that fall outside the antitrust safety zone 

do not necessarily raise antitrust concerns. There are several 

safeguards that joint purchasing arrangements can adopt to 

mitigate concerns that might otherwise arise. First, antitrust 

19 This especially is true because some large purchasers 

negotiate prices with hospitals and other providers that 

encompass a group of services, while others pay separately for 

each service. 

56 
concern is lessened if members are not required to use the 

arrangement for all their purchases of a particular product or 

service. Members can, however, be asked to commit to purchase a 

voluntarily specified amount through the arrangement so that a 

volume discount or other favorable contract can be negotiated. 

Second, where negotiations are conducted on behalf of the joint 

purchasing arrangement by an independent employee or agent who is 

not also an employee of a participant, antitrust risk is lowered. 

Third, the likelihood of anticompetitive communications is 

lessened where communications between the purchasing group and 

each individual participant are kept confidential, and not 

discussed with, or disseminated to, other participants. 

These safeguards will reduce substantially, if not 

completely eliminate, use of the purchasing arrangement as a 

vehicle for discussing and coordinating the prices of health 

care services offered by the participants.20 The adoption of 

these safeguards also will help demonstrate that the joint 

purchasing arrangement is intended to achieve economic 

efficiencies rather than to serve an anticompetitive purpose. 

Where there appear to be significant efficiencies from a joint 

purchasing arrangement, the Agencies will not challenge the 

arrangement absent substantial risk of anticompetitive effects. 

20 Obviously, if the members of a legitimate purchasing group 

engage in price fixing or other collusive anticompetitive conduct 

as to services sold by the participants, whether through the 

arrangement or independently, they remain subject to antitrust 

challenge. 

57 
The existence of a large number and variety of purchasing 

groups in the health care field suggests that entry barriers to 

forming new groups currently are not great. Thus, in most 

circumstances at present, it is not necessary to open a joint 

purchasing arrangement to all competitors in the market. 

However, if some competitors excluded from the arrangement are 

unable to compete effectively without access to the arrangement, 

and competition is thereby harmed, antitrust concerns will exist. 

C. Example -- Joint Purchasing Arrangement Involving Both 

Hospitals In Rural Community That The Agencies Would Not 

Challenge 

Smalltown is the county seat of Rural County. There are two 

general acute care hospitals, County Hospital ("County") and 

Smalltown Medical Center ("SMC"), both located in Smalltown. The 

nearest other hospitals are located in Big City, about 100 miles 

from Smalltown. 

County and SMC propose to join a joint venture being formed 

by several of the hospitals in Big City through which they will 

purchase various hospital supplies -- such as bandages, 

antiseptics, surgical gowns, and masks. The joint venture will 

likely be the vehicle for the purchase of most such products by 

the Smalltown hospitals, but under the joint venture agreement, 

both retain the option to purchase supplies independently. 

The joint venture will be an independent corporation, jointly 

owned by the participating hospitals. It will purchase the 

supplies needed by the hospitals and then resell them to the 

hospitals at average variable cost plus a reasonable return on 

58 
capital. The joint venture will periodically solicit from each 

participating hospital its expected needs for various hospital 

supplies, and negotiate the best terms possible for the combined 

purchases. It will also purchase supplies for its member 

hospitals on an ad hoc basis. 

Competitive Analysis 

The first issue is whether the proposed joint purchasing 

arrangement would fall within the safety zone set forth in this 

policy statement. In order to make this determination, the 

Agencies would first inquire whether the joint purchases would 

account for less than 35 percent of the total sales of the 

purchased products in the relevant markets for the sales of those 

products. Here, the relevant hospital supply markets are likely 

to be national or at least regional in scope. Thus, while County 

and SMC might well account for more than 35 percent of the total 

sales of many hospital supplies in Smalltown or Rural County, 

they and the other hospitals in Big City that will participate in 

the arrangement together would likely not account for significant 

percentages of sales in the actual relevant markets. Thus, the 

first criterion for inclusion in the safety zone is likely to be 

satisfied. 

The Agencies would then inquire whether the supplies to be 

purchased jointly account for less than 20 percent of the total 

revenues from all products and services sold by each of the 

competing hospitals that participate in the arrangement. In this 

case, County and SMC are competing hospitals, but this second 

59 
criterion for inclusion in the safety zone is also likely to be 

satisfied, and the Agencies would not challenge the joint 

purchasing arrangement. 

*** 

Hospitals or other health care providers that are 

considering joint purchasing arrangements and are unsure of the 

legality of their conduct under the antitrust laws can take 

advantage of the Department of Justice's expedited business 

review procedure for joint ventures and information exchanges 

announced on December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the 

Federal Trade Commission's advisory opinion procedure contained 

at 16 C.F.R. §§ 1.1-1.4 (1993). The Agencies will respond to a 

business review or advisory opinion request on behalf of health 

care providers considering a joint purchasing arrangement within 

90 days after all necessary information is submitted. The 

Department's December 1, 1992 announcement contains specific 

guidance as to the information that should be submitted. 

60 
 8. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL 

TRADE COMMISSION ENFORCEMENT POLICY 

ON PHYSICIAN NETWORK JOINT VENTURES 

Introduction 

In recent years, health plans and other purchasers of health 

care services have developed a variety of managed care programs 

that seek to reduce the costs and assure the quality of health 

care services. Many physicians and physician groups have 

organized physician network joint ventures, such as individual 

practice associations ("IPAs"), preferred provider organizations 

("PPOs"), and other arrangements to market their services to 

these plans.21 Typically, such networks contract with the plans 

to provide physician services to plan subscribers at 

predetermined prices, and the physician participants in the 

networks agree to controls aimed at containing costs and assuring 

the appropriate and efficient provision of high quality physician 

services. By developing and implementing mechanisms that 

encourage physicians to collaborate in practicing efficiently as 

part of the network, many physician network joint ventures 

promise significant procompetitive benefits for consumers of 

health care services. 

21 An IPA or PPO typically provides medical services to the 

subscribers of health plans but does not act as their insurer. 

In addition, an IPA or PPO does not require complete integration 

of the medical practices of its physician participants. Such 

physicians typically continue to compete fully for patients who 

are enrolled in health plans not served by the IPA or PPO, or who 

have indemnity insurance or pay for the physician's services 

directly "out of pocket." 

61 
As used in this statement, a physician network joint venture 

is a physician-controlled venture in which the network's 

physician participants collectively agree on prices or pricerelated terms and jointly market their services.22 Other types 

of health care network joint ventures are not directly addressed 

by this statement.23 

This statement of enforcement policy describes the Agencies’ 

antitrust analysis of physician network joint ventures, and 

presents several examples of its application to specific 

hypothetical physician network joint ventures. Before describing 

the general antitrust analysis, the statement sets forth 

antitrust safety zones that describe physician network joint 

ventures that are highly unlikely to raise substantial 

competitive concerns, and therefore will not be challenged by the 

22 Although this statement refers to IPAs and PPOs as 

examples of physician network joint ventures, the Agencies' 

competitive analysis focuses on the substance of such 

arrangements, not on their formal titles. This policy statement 

applies, therefore, to all entities that are substantively 

equivalent to the physician network joint ventures described in 

this statement. 

23 The physician network joint ventures discussed in this 

statement are one type of the multiprovider network joint 

ventures discussed below in the Agencies' Statement Of 

Enforcement Policy On Multiprovider Networks. That statement 

also covers other types of networks, such as networks that 

include both hospitals and physicians, and networks involving 

non-physician health professionals. In addition, that statement 

(see infra pp. 106-141), and Example 7 of this statement, address 

networks that do not include agreements among competitors on 

prices or price-related terms, through use of various “messenger 

model” arrangements. Many of the issues relating to physician 

network joint ventures are the same as those that arise and are 

addressed in connection with multiprovider networks generally, 

and the analysis often will be very similar for all such 

arrangements. 

62 
 

Agencies under the antitrust laws, absent extraordinary 

circumstances. 

The Agencies emphasize that merely because a physician 

network joint venture does not come within a safety zone in no 

way indicates that it is unlawful under the antitrust laws. On 

the contrary, such arrangements may be procompetitive and lawful, 

and many such arrangements have received favorable business 

review letters or advisory opinions from the Agencies.24 The 

safety zones use a few factors that are relatively easy to apply, 

to define a category of ventures for which the Agencies presume 

no anticompetitive harm, without examining competitive conditions 

in the particular case. A determination about the lawfulness of 

physician network joint ventures that fall outside the safety 

24 For example, the Agencies have approved a number of nonexclusive physician or provider networks in which the percentage 

of participating physicians or providers in the market exceeded 

the 30% criterion of the safety zone. See, e.g., Letter from 

Anne K. Bingaman, Assistant Attorney General, Department of 

Justice, to John F. Fischer (Oklahoma Physicians Network, Inc.) 

(Jan. 17, 1996) (“substantially more” than 30% of several 

specialties in a number of local markets, including more than 50% 

in one specialty); Letter from Anne K. Bingaman to Melissa J. 

Fields (Dermnet, Inc.) (Dec. 5, 1995) (44% of board-certified 

dermatologists); Letter from Anne K. Bingaman to Dee Hartzog 

(International Chiropractor’s Association of California) (Oct. 

27, 1994) (up to 50% of chiropractors); Letter from Mark 

Horoschak, Assistant Director, Federal Trade Commission, to 

Stephen P. Nash (Eastern Ohio Physicians Organization) (Sept. 28, 

1995) (safety zone’s 30% criterion exceeded for primary care 

physicians by a small amount, and for certain subspecialty fields 

“to a greater extent”); Letter from Mark Horoschak to John A. 

Cook (Oakland Physician Network) (Mar. 28, 1995) (multispecialty 

network with 44% of physicians in one specialty). 

63 
zones must be made on a case-by-case basis according to general 

antitrust principles and the more specific analysis described in 

this statement. 

A. Antitrust Safety Zones 

This section describes those physician network joint ventures 

that will fall within the antitrust safety zones designated by 

the Agencies. The antitrust safety zones differ for "exclusive" 

and "non-exclusive" physician network joint ventures. In an 

"exclusive" venture, the network's physician participants are 

restricted in their ability to, or do not in practice, 

individually contract or affiliate with other network joint 

ventures or health plans. In a "non-exclusive" venture, on the 

other hand, the physician participants in fact do, or are 

available to, affiliate with other networks or contract 

individually with health plans. This section explains how the 

Agencies will determine whether a physician network joint venture 

is exclusive or non-exclusive. It also illustrates types of 

arrangements that can involve the sharing of substantial 

financial risk among a network's physician participants, which is 

necessary for a network to come within the safety zones. 

1. Exclusive Physician Network Joint Ventures That The 

Agencies Will Not Challenge, Absent Extraordinary 

Circumstances 

The Agencies will not challenge, absent extraordinary 

circumstances, an exclusive physician network joint venture whose 

physician participants share substantial financial risk and 

64 
constitute 20 percent or less of the physicians25 in each 

physician specialty with active hospital staff privileges who 

practice in the relevant geographic market.26 In relevant 

markets with fewer than five physicians in a particular 

specialty, an exclusive physician network joint venture otherwise 

qualifying for the antitrust safety zone may include one 

physician from that specialty, on a non-exclusive basis, even 

though the inclusion of that physician results in the venture 

consisting of more than 20 percent of the physicians in that 

specialty. 

2. Non-Exclusive Physician Network Joint Ventures That The 

Agencies Will Not Challenge, Absent Extraordinary 

Circumstances 

The Agencies will not challenge, absent extraordinary 

circumstances, a non-exclusive physician network joint venture 

whose physician participants share substantial financial risk and 

constitute 30 percent or less of the physicians in each physician 

specialty with active hospital staff privileges who practice in 

the relevant geographic market. In relevant markets with fewer 

than four physicians in a particular specialty, a non-exclusive 

physician network joint venture otherwise qualifying for the 

antitrust safety zone may include one physician from that 

25 For purposes of the antitrust safety zones, in 

calculating the number of physicians in a relevant market and the 

number of physician participants in a physician network joint 

venture, each physician ordinarily will be counted individually, 

whether the physician practices in a group or solo practice. 

26 Generally, relevant geographic markets for the delivery 

of physician services are local. 

65 
specialty, even though the inclusion of that physician results in 

the venture consisting of more than 30 percent of the physicians 

in that specialty. 

3. Indicia Of Non-Exclusivity 

Because of the different market share thresholds for the 

safety zones for exclusive and non-exclusive physician network 

joint ventures, the Agencies caution physician participants in a 

non-exclusive physician network joint venture to be sure that the 

network is non-exclusive in fact and not just in name. The 

Agencies will determine whether a physician network joint venture 

is exclusive or non-exclusive by its physician participants' 

activities, and not simply by the terms of the contractual 

relationship. In making that determination, the Agencies will 

examine the following indicia of non-exclusivity, among others: 

(1) that viable competing networks or managed care plans 

with adequate physician participation currently exist in 

the market; 

(2) that physicians in the network actually individually 

participate in, or contract with, other networks or 

managed care plans, or there is other evidence of their 

willingness and incentive to do so; 

(3) that physicians in the network earn substantial revenue 

from other networks or through individual contracts with 

managed care plans; 

(4) the absence of any indications of significant departicipation from other networks or managed care plans 

in the market; and 

66 
 

(5) the absence of any indications of coordination among the 

physicians in the network regarding price or other 

competitively significant terms of participation in 

other networks or managed care plans. 

Networks also may limit or condition physician participants’ 

freedom to contract outside the network in ways that fall short 

of a commitment of full exclusivity. If those provisions 

significantly restrict the ability or willingness of a network’s 

physicians to join other networks or contract individually with 

managed care plans, the network will be considered exclusive for 

purposes of the safety zones. 

4. Sharing Of Substantial Financial Risk By Physicians In A 

Physician Network Joint Venture 

To qualify for either antitrust safety zone, the participants 

in a physician network joint venture must share substantial 

financial risk in providing all the services that are jointly 

priced through the network.27 The safety zones are limited to 

networks involving substantial financial risk sharing not because 

such risk sharing is a desired end in itself, but because it 

27 Physician network joint ventures that involve both risksharing and non-risk-sharing arrangements do not fall within the 

safety zones. For example, a network may have both risk-sharing 

and non-risk-sharing contracts. It also may have contracts that 

involve risk sharing, but not all the physicians in the network 

participate in risk sharing or not all of the services are paid 

for on a risk-sharing basis. The Agencies will consider each of 

the network’s arrangements separately, as well as the activities 

of the venture as a whole, to determine whether the joint pricing 

with respect to the non-risk-sharing aspects of the venture is 

appropriately analyzed under the rule of reason. See infra 

Example 2. The mere presence of some risk-sharing arrangements, 

however, will not necessarily result in rule of reason analysis 

of the non-risk-sharing aspects of the venture. 

67 
 

 

normally is a clear and reliable indicator that a physician 

network involves sufficient integration by its physician 

participants to achieve significant efficiencies.28 Risk sharing 

provides incentives for the physicians to cooperate in 

controlling costs and improving quality by managing the provision 

of services by network physicians. 

The following are examples of some types of arrangements 

through which participants in a physician network joint venture 

can share substantial financial risk:29 

(1) agreement by the venture to provide services to a health 

plan at a "capitated" rate;30 

(2) agreement by the venture to provide designated services 

or classes of services to a health plan for a 

predetermined percentage of premium or revenue from the 

plan;31 

28 The existence of financial risk sharing does not depend 

on whether, under applicable state law, the network is considered 

an insurer. 

29 Physician participants in a single network need not all 

be involved in the same risk-sharing arrangement within the 

network to fall within the safety zones. For example, primary 

care physicians may be capitated and specialists subject to a 

withhold, or groups of physicians may be in separate risk pools. 

30 A "capitated" rate is a fixed, predetermined payment per 

covered life (the "capitation") from a health plan to the joint 

venture in exchange for the joint venture's (not merely an 

individual physician's) providing and guaranteeing provision of a 

defined set of covered services to covered individuals for a 

specified period, regardless of the amount of services actually 

provided. 

31 This is similar to a capitation arrangement, except that 

the amount of payment to the network can vary in response to 

changes in the health plan's premiums or revenues. 

68 
 

(3) use by the venture of significant financial incentives 

for its physician participants, as a group, to achieve 

specified cost-containment goals. Two methods by which 

the venture can accomplish this are: 

(a) withholding from all physician participants in the 

network a substantial amount of the compensation 

due to them, with distribution of that amount to 

the physician participants based on group 

performance in meeting the cost-containment goals 

of the network as a whole; or 

(b) establishing overall cost or utilization targets 

for the network as a whole, with the network's 

physician participants subject to subsequent 

substantial financial rewards or penalties based on 

group performance in meeting the targets; and 

(4) agreement by the venture to provide a complex or 

extended course of treatment that requires the 

substantial coordination of care by physicians in 

different specialities offering a complementary mix of 

services, for a fixed, predetermined payment, where the 

costs of that course of treatment for any individual 

patient can vary greatly due to the individual patient’s 

condition, the choice, complexity, or length of 

treatment, or other factors.32 

The Agencies recognize that new types of risk-sharing 

arrangements may develop. The preceding examples do not 

foreclose consideration of other arrangements through which the 

participants in a physician network joint venture may share 

substantial financial risk in the provision of medical services 

through the network.33 Organizers of physician networks who are 

32 Such arrangements are sometimes referred to as “global 

fees” or “all-inclusive case rates.” Global fee or all-inclusive 

case rate arrangements that involve financial risk sharing as 

contemplated by this example will require that the joint venture 

(not merely an individual physician participant) assume the risk 

or benefit that the treatment provided through the network may 

either exceed, or cost less than, the predetermined payment. 

33 The manner of dividing revenues among the network's 

physician participants generally does not raise antitrust issues 

so long as the competing physicians in a network (continued...) 

69 
 

uncertain whether their proposed arrangements constitute 

substantial financial risk sharing for purposes of this policy 

statement are encouraged to take advantage of the Agencies’ 

expedited business review and advisory opinion procedures. 

B. The Agencies’ Analysis Of Physician Network Joint Ventures 

That Fall Outside The Antitrust Safety Zones 

Physician network joint ventures that fall outside the 

antitrust safety zones also may have the potential to create 

significant efficiencies, and do not necessarily raise 

substantial antitrust concerns. For example, physician network 

joint ventures in which the physician participants share 

substantial financial risk, but which involve a higher percentage 

of physicians in a relevant market than specified in the safety 

zones, may be lawful if they are not anticompetitive on 

balance.34 Likewise, physician network joint ventures that do 

not involve the sharing of substantial financial risk also may be 

lawful if the physicians’ integration through the joint venture 

creates significant efficiencies and the venture, on balance, is 

not anticompetitive. 

share substantial financial risk. For example, capitated 

networks may distribute income among their physician participants 

using fee-for-service payment with a partial withhold fund to 

cover the risk of having to provide more services than were 

originally anticipated. 

34 See infra Examples 5 and 6. Many such physician networks 

have received favorable business review or advisory opinion 

letters from the Agencies. The percentages used in the safety 

zones define areas in which the lack of anticompetitive effects 

ordinarily will be presumed. 

70 
The Agencies emphasize that it is not their intent to treat 

such networks either more strictly or more leniently than joint 

ventures in other industries, or to favor any particular 

procompetitive organization or structure of health care delivery 

over other forms that consumers may desire. Rather, their goal 

is to ensure a competitive marketplace in which consumers will 

have the benefit of high quality, cost-effective health care and 

a wide range of choices, including new provider-controlled 

networks that expand consumer choice and increase competition. 

1. Determining When Agreements Among Physicians In A 

Physician Network Joint Venture Are Analyzed Under The 

Rule Of Reason 

Antitrust law treats naked agreements among competitors that 

fix prices or allocate markets as per se illegal. Where 

competitors economically integrate in a joint venture, however, 

such agreements, if reasonably necessary to accomplish the 

procompetitive benefits of the integration, are analyzed under 

the rule of reason.35 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 

35 In a network limited to providers who are not actual or 

potential competitors, the providers generally can agree on the 

prices to be charged for their services without the kinds of 

economic integration discussed below. 

71 
 

would otherwise be per se illegal) by the network physicians are 

reasonably necessary to realize those efficiencies.36 

Where the participants in a physician network joint venture 

have agreed to share substantial financial risk as defined in 

Section A.4. of this policy statement, their risk-sharing 

arrangement generally establishes both an overall efficiency goal 

for the venture and the incentives for the physicians to meet 

that goal. The setting of price is integral to the venture’s use 

of such an arrangement and therefore warrants evaluation under 

the rule of reason. 

Physician network joint ventures that do not involve the 

sharing of substantial financial risk may also involve sufficient 

integration to demonstrate that the venture is likely to produce 

significant efficiencies. Such integration can be evidenced 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 

36 In some cases, the combination of the competing 

physicians in the network may enable them to offer what could be 

considered to be a new product producing substantial 

efficiencies, and therefore the venture will be analyzed under 

the rule of reason. See Broadcast Music, Inc. v. Columbia 

Broadcasting System, Inc., 441 U.S. 1, 21-22 (1979) (competitors' 

integration and creation of a blanket license for use of 

copyrighted compositions results in efficiencies so great as to 

make the blanket license a "different product" from the mere 

combination of individual competitors and, therefore, joint 

pricing of the blanket license is subject to rule of reason 

analysis, rather than the per se rule against price fixing). The 

Agencies’ analysis will focus on the efficiencies likely to be 

produced by the venture, and the relationship of any price 

agreements to the achievement of those efficiencies, rather than 

on whether the venture creates a product that can be labeled 

“new” or “different.” 

72 
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. 

The foregoing are not, however, the only types of 

arrangements that can evidence sufficient integration to warrant 

rule of reason analysis, and the Agencies will consider other 

arrangements that also may evidence such integration. However, 

in all cases, the Agencies’ analysis will focus on substance, 

rather than form, in assessing a network’s likelihood of 

producing significant efficiencies. To the extent that 

agreements on prices to be charged for the integrated provision 

of services are reasonably necessary to the venture’s achievement 

of efficiencies, they will be evaluated under the rule of reason. 

In contrast to integrated physician network joint ventures, 

such as these discussed above, there have been arrangements among 

physicians that have taken the form of networks, but which in 

purpose or effect were little more than efforts by their 

participants to prevent or impede competitive forces from 

operating in the market. These arrangements are not likely to 

produce significant procompetitive efficiencies. Such 

73 
arrangements have been, and will continue to be, treated as 

unlawful conspiracies or cartels, whose price agreements are 

per se illegal. 

Determining that an arrangement is merely a vehicle to fix 

prices or engage in naked anticompetitive conduct is a factual 

inquiry that must be done on a case-by-case basis to determine 

the arrangement's true nature and likely competitive effects. 

However, a variety of factors may tend to corroborate a network's 

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. 

2. Applying The Rule Of Reason 

A rule of reason analysis determines whether the formation 

and operation of the joint venture may have a substantial 

anticompetitive effect and, if so, whether that potential effect 

74 
is outweighed by any procompetitive efficiencies resulting from 

the joint venture. The rule of reason analysis takes into 

account characteristics of the particular physician network joint 

venture, and the competitive environment in which it operates, 

that bear on the venture's likely effect on competition. 

A determination about the lawfulness of a network’s activity 

under the rule of reason sometimes can be reached without an 

extensive inquiry under each step of the analysis. For example, 

a physician network joint venture that involves substantial 

clinical integration may include a relatively small percentage of 

the physicians in the relevant markets on a non-exclusive basis. 

In that case, the Agencies may be able to conclude expeditiously 

that the network is unlikely to be anticompetitive, based on the 

competitive environment in which it operates. In assessing the 

competitive environment, the Agencies would consider such market 

factors as the number, types, and size of managed care plans 

operating in the area, the extent of physician participation in 

those plans, and the economic importance of the managed care 

plans to area physicians. See infra Example 1. Alternatively, 

for example, if a restraint that facially appears to be of a kind 

that would always or almost always tend to reduce output or 

increase prices, but has not been considered per se unlawful, is 

not reasonably necessary to the creation of efficiencies, the 

75 
 

 

 

Agencies will likely challenge the restraint without an elaborate 

analysis of market definition and market power.37 

The steps ordinarily involved in a rule of reason analysis of 

physician network joint ventures are set forth below. 

Step one: Define the relevant market. The Agencies evaluate 

the competitive effects of a physician network joint venture in 

each relevant market in which it operates or has substantial 

impact. In defining the relevant product and geographic markets, 

the Agencies look to what substitutes, as a practical matter, are 

reasonably available to consumers for the services in question.38 

The Agencies will first identify the relevant services that the 

physician network joint venture provides. Although all services 

provided by each physician specialty might be a separate relevant 

service market, there may be instances in which significant 

overlap of services provided by different physician specialties, 

or in some circumstances, certain nonphysician health care 

providers, justifies including services from more than one 

physician specialty or category of providers in the same market. 

For each relevant service market, the relevant geographic market 

will include all physicians (or other providers) who are good 

substitutes for the physician participants in the joint venture. 

37 See FTC v. Indiana Federation of Dentists, 476 U.S. 447, 

459-60 (1986). 

38 A more extensive discussion of how the Agencies define 

relevant markets is contained in the Agencies' 1992 Horizontal 

Merger Guidelines. 

76 
Step two: Evaluate the competitive effects of the physician 

joint venture. The Agencies examine the structure and activities 

of the physician network joint venture and the nature of 

competition in the relevant market to determine whether the 

formation or operation of the venture is likely to have an 

anticompetitive effect. Two key areas of competitive concern are 

whether a physician network joint venture could raise the prices 

for physician services charged to health plans above competitive 

levels, or could prevent or impede the formation or operation of 

other networks or plans. 

In assessing whether a particular network arrangement could 

raise prices or exclude competition, the Agencies will examine 

whether the network physicians collectively have the ability and 

incentive to engage in such conduct. The Agencies will consider 

not only the proportion of the physicians in any relevant market 

who are in the network, but also the incentives faced by 

physicians in the network, and whether different groups of 

physicians in a network may have significantly different 

incentives that would reduce the likelihood of anticompetitive 

conduct. The Department of Justice has entered into final 

judgments that permit a network to include a relatively large 

proportion of physicians in a relevant market where the 

percentage of physicians with an ownership interest in the 

network is strictly limited, and the network subcontracts with 

additional physicians under terms that create a sufficient 

divergence of economic interest between the subcontracting 

77 
 

physicians and the owner physicians so that the owner physicians 

have an incentive to control the costs to the network of the 

subcontracting physicians.39 Evaluating the incentives faced by 

network physicians requires an examination of the facts and 

circumstances of each particular case. The Agencies will assess 

whether different groups of physicians in the network actually 

have significantly divergent incentives that would override any 

shared interest, such as the incentive to profit from higher fees 

for their medical services. The Agencies will also consider 

whether the behavior of network physicians or other market 

evidence indicates that the differing incentives among groups of 

physicians will not prevent anticompetitive conduct. 

If, in the relevant market, there are many other networks or 

many physicians who would be available to form competing networks 

or to contract directly with health plans, it is unlikely that 

the joint venture would raise significant competitive concerns. 

The Agencies will analyze the availability of suitable physicians 

to form competing networks, including the exclusive or 

non-exclusive nature of the physician network joint venture. 

The Agencies recognize that the competitive impact of 

exclusive arrangements or other limitations on the ability of a 

network’s physician participants to contract outside the network 

39 See, e.g., Competitive Impact Statements in United States 

v. Health Choice of Northwest Missouri, Inc., Case No. 95-6171-

CV-SJ-6 (W.D. Mo.; filed Sept. 13, 1995), 60 Fed. Reg. 51808, 

51815 (Oct. 3, 1995); United States and State of Connecticut v. 

HealthCare Partners, Inc., Case No. 395-CV-01946-RNC (D. Conn.; 

filed Sept. 13, 1995), 60 Fed. Reg. 52018, 52020 (Oct. 4, 1995). 

78 
can vary greatly. For example, in some circumstances exclusivity 

may help a network serve its subscribers and increase its 

physician participants' incentives to further the interests of 

the network. In other situations, however, the anticompetitive 

risks posed by such exclusivity may outweigh its procompetitive 

benefits. Accordingly, the Agencies will evaluate the actual or 

likely effects of particular limitations on contracting in the 

market situation in which they occur. 

An additional area of possible anticompetitive concern 

involves the risk of "spillover" effects from the venture. For 

example, a joint venture may involve the exchange of 

competitively sensitive information among competing physicians 

and thereby become a vehicle for the network's physician 

participants to coordinate their activities outside the venture. 

Ventures that are structured to reduce the likelihood of such 

spillover are less likely to result in anticompetitive effects. 

For example, a 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. 

79 
 

Step three: Evaluate the impact of procompetitive 

efficiencies.40 This step requires an examination of the joint 

venture's likely procompetitive efficiencies, and the balancing 

of these efficiencies against any likely anticompetitive effects. 

The greater the venture's likely anticompetitive effects, the 

greater must be the venture's likely efficiencies. In assessing 

efficiency claims, the Agencies focus on net efficiencies that 

will be derived from the operation of the network and that result 

in lower prices or higher quality to consumers. The Agencies 

will not accept claims of efficiencies if the parties reasonably 

can achieve equivalent or comparable savings through 

significantly less anticompetitive means. In making this 

assessment, however, the Agencies will not search for a 

theoretically least restrictive alternative that is not practical 

given business realities. 

Experience indicates that, in general, more significant 

efficiencies are likely to result from a physician network joint 

venture's substantial financial risk sharing or substantial 

clinical integration. However, the Agencies will consider a 

broad range of possible cost savings, including improved cost 

controls, case management and quality assurance, economies of 

scale, and reduced administrative or transaction costs. 

40 If steps one and two reveal no competitive concerns with 

the physician network joint venture, step three is unnecessary, 

and the analysis continues with step four, below. 

80 
In assessing the likelihood that efficiencies will be 

realized, the Agencies recognize that competition is one of the 

strongest motivations for firms to lower prices, reduce costs, 

and provide higher quality. Thus, the greater the competition 

facing the network, the more likely it is that the network will 

actually realize potential efficiencies that would benefit 

consumers. 

Step four: Evaluation of collateral agreements. This step 

examines whether the physician network joint venture includes 

collateral agreements or conditions that unreasonably restrict 

competition and are unlikely to contribute significantly to the 

legitimate purposes of the physician network joint venture. The 

Agencies will examine whether the collateral agreements are 

reasonably necessary to achieve the efficiencies sought by the 

joint venture. For example, if the physician participants in a 

physician network joint venture agree on the prices they will 

charge patients who are not covered by the health plans with 

which their network contracts, such an agreement plainly is not 

reasonably necessary to the success of the joint venture and is 

an antitrust violation.41 Similarly, attempts by a physician 

network joint venture to exclude competitors or classes of 

competitors of the network’s physician participants from the 

market could have anticompetitive effects, without advancing any 

41 This analysis of collateral agreements also applies to 

physician network joint ventures that fall within the safety 

zones. 

81 
legitimate, procompetitive goal of the network. This could 

happen, for example, if the network facilitated agreements among 

the physicians to refuse to deal with such competitors outside 

the network, or to pressure other market participants to refuse 

to deal with such competitors or deny them necessary access to 

key facilities. 

C. Examples Of Physician Network Joint Ventures 

The following are examples of how the Agencies would apply 

the principles set forth in this statement to specific physician 

network joint ventures. The first three are new examples: 1) a 

network involving substantial clinical integration, that is 

unlikely to raise significant competitive concerns under the rule 

of reason; 2) a network involving both substantial financial 

risk-sharing and non-risk-sharing arrangements, which would be 

analyzed under the rule of reason; and 3) a network involving 

neither substantial financial risk-sharing nor substantial 

clinical integration, and whose price agreements likely would be 

challenged as per se unlawful. The last four examples involve 

networks that operate in a variety of market settings and with 

different levels of physician participants; three are networks 

that involve substantial financial risk-sharing and one is a 

network in which the physician participants do not jointly agree 

on, or negotiate, price. 

82 
1. Physician Network Joint Venture Involving Clinical 

Integration 

Charlestown is a relatively isolated, medium-sized city. For 

the purposes of this example, the services provided by primary 

care physicians and those provided by the different physician 

specialties each constitute a relevant product market; and the 

relevant geographic market for each of them is Charlestown. 

Several HMOs and other significant managed care plans operate 

in Charlestown. A substantial proportion of insured individuals 

are enrolled in these plans, and enrollment in managed care is 

expected to increase. Many physicians in each of the specialties 

participate in more than one of these plans. There is no 

significant overlap among the participants on the physician 

panels of many of these plans. 

A group of Charlestown physicians establishes an IPA to 

assume greater responsibility for managing the cost and quality 

of care rendered to Charlestown residents who are members of 

health plans. They hope to reduce costs while maintaining or 

improving the quality of care, and thus to attract more managed 

care patients to their practices. 

The IPA will implement systems to establish goals relating to 

quality and appropriate utilization of services by IPA 

participants, regularly evaluate both individual participants’ 

and the network’s aggregate performance with respect to those 

goals, and modify individual participants’ actual practices, 

where necessary, based on those evaluations. The IPA will engage 

in case management, preauthorization of some services, and 

83 
concurrent and retrospective review of inpatient stays. In 

addition, the IPA is developing practice standards and protocols 

to govern treatment and utilization of services, and it will 

actively review the care rendered by each doctor in light of 

these standards and protocols. 

There is a significant investment of capital to purchase the 

information systems necessary to gather aggregate and individual 

data on the cost, quantity, and nature of services provided or 

ordered by the IPA physicians; to measure performance of the 

group and the individual doctors against cost and quality 

benchmarks; and to monitor patient satisfaction. The IPA will 

provide payers with detailed reports on the cost and quantity of 

services provided, and on the network’s success in meeting its 

goals. 

The IPA will hire a medical director and a support staff to 

perform the above functions and to coordinate patient care in 

specific cases. The doctors also have invested appreciable time 

in developing the practice standards and protocols, and will 

continue actively to monitor care provided through the IPA. 

Network participants who fail to adhere to the network’s 

standards and protocols will be subject to remedial action, 

including the possibility of expulsion from the network. 

The IPA physicians will be paid by health plans on a fee-forservice basis; the physicians will not share substantial 

financial risk for the cost of services rendered to covered 

individuals through the network. The IPA will retain an agent to 

84 
develop a fee schedule, negotiate fees, and contract with payers 

on behalf of the venture. Information about what participating 

doctors charge non-network patients will not be disseminated to 

participants in the IPA, and the doctors will not agree on the 

prices they will charge patients not covered by IPA contracts. 

The IPA is built around three geographically dispersed 

primary care group practices that together account for 25 percent 

of the primary care doctors in Charlestown. A number of 

specialists to whom the primary care doctors most often refer 

their patients also are invited to participate in the IPA. These 

specialists are selected based on their established referral 

relationships with the primary care doctors, the quality of care 

provided by the doctors, their willingness to cooperate with the 

goals of the IPA, and the need to provide convenient referral 

services to patients of the primary care doctors. Specialist 

services that are needed less frequently will be provided by 

doctors who are not IPA participants. Participating specialists 

constitute from 20 to 35 percent of the specialists in each 

relevant market, depending on the specialty. Physician 

participation in the IPA is non-exclusive. Many IPA participants 

already do and are expected to continue to participate in other 

managed care plans and earn substantial income from those plans. 

Competitive Analysis 

Although the IPA does not fall within the antitrust safety 

zone because the physicians do not share substantial financial 

risk, the Agencies would analyze the IPA under the rule of reason 

85 
 

because it offers the potential for creating significant 

efficiencies and the price agreement is reasonably necessary to 

realize those efficiencies. Prior to contracting on behalf of 

competing doctors, the IPA will develop and invest in mechanisms 

to provide cost-effective quality care, including standards and 

protocols to govern treatment and utilization of services, 

information systems to measure and monitor individual physician 

and aggregate network performance, and procedures to modify 

physician behavior and assure adherence to network standards and 

protocols. The network is structured to achieve its efficiencies 

through a high degree of interdependence and cooperation among 

its physician participants. The price agreement, under these 

circumstances, is subordinate to and reasonably necessary to 

achieve these objectives.42 

Furthermore, the Agencies would not challenge under the rule 

of reason the doctors’ agreement to establish and operate the 

IPA. In conducting the rule of reason analysis, the Agencies 

would evaluate the likely competitive effects of the venture in 

each relevant market. In this case, the IPA does not appear 

likely to limit competition in any relevant market either by 

hampering the ability of health plans to contract individually 

42 Although the physicians in this example have not directly 

agreed with one another on the prices to be charged for services 

rendered through the network, the venture’s use of an agent, 

subject to its control, to establish fees and to negotiate and 

execute contracts on behalf of the venture amounts to a price 

agreement among competitors. However, the use of such an agent 

should reduce the risk of the network’s activities having 

anticompetitive spillover effects on competition among the 

physicians for non-network patients. 

86 
with area physicians or with other physician network joint 

ventures, or by enabling the physicians to raise prices above 

competitive levels. The IPA does not appear to be overinclusive: 

many primary care physicians and specialists are available to 

other plans, and the doctors in the IPA have been selected to 

achieve the network’s procompetitive potential. Many IPA 

participants also participate in other managed care plans and are 

expected to continue to do so in the future. Moreover, several 

significant managed care plans are not dependent on the IPA 

participants to offer their products to consumers. Finally, the 

venture is structured so that physician participants do not share 

competitively sensitive information, thus reducing the likelihood 

of anticompetitive spillover effects outside the network where 

the physicians still compete, and the venture avoids any 

anticompetitive collateral agreements. 

Since the venture is not likely to be anticompetitive, there 

is no need for further detailed evaluation of the venture’s 

potential for generating procompetitive efficiencies. For these 

reasons, the Agencies would not challenge the joint venture. 

However, they would reexamine this conclusion and do a more 

complete analysis of the procompetitive efficiencies if evidence 

of actual anticompetitive effects were to develop. 

87 
2. Physician Network Joint Venture Involving Risk-Sharing 

And Non-Risk-Sharing Contracts 

An IPA has capitation contracts with three insurer-developed 

HMOs. Under its contracts with the HMOs, the IPA receives a set 

fee per member per month for all covered services required by 

enrollees in a particular health plan. Physician participants in 

the IPA are paid on a fee-for-service basis, pursuant to a fee 

schedule developed by the IPA. Physicians participate in the IPA 

on a non-exclusive basis. Many of the IPA’s physicians 

participate in managed care plans outside the IPA, and earn 

substantial income from those plans. 

The IPA uses a variety of mechanisms to assure appropriate 

use of services under its capitation contracts so that it can 

provide contract services within its capitation budgets. In part 

because the IPA has managed the provision of care effectively, 

enrollment in the HMOs has grown to the point where HMO patients 

are a significant share of the IPA doctors’ patients. 

The three insurers that offer the HMOs also offer PPO options 

in response to the request of employers who want to give their 

employees greater choice of plans. Although the capitation 

contracts are a substantial majority of the IPA’s business, it 

also contracts with the insurers to provide services to the PPO 

programs on a fee-for-service basis. The physicians are paid 

according to the same fee schedule used to pay them under the 

IPA’s capitated contracts. The IPA uses the same panel of 

providers and the same utilization management mechanisms that are 

involved in the HMO contracts. The IPA has tracked utilization 

88 
for HMO and PPO patients, which shows similar utilization 

patterns for both types of patients. 

Competitive Analysis 

Because the IPA negotiates and enters into both capitated and 

fee-for-service contracts on behalf on its physicians, the 

venture is not within a safety zone. However, the IPA’s HMO 

contracts are analyzed under the rule of reason because they 

involve substantial financial risk-sharing. The PPO contracts 

also are analyzed under the rule of reason because there are 

significant efficiencies from the capitated arrangements that 

carry over to the fee-for-service business. The IPA’s procedures 

for managing the provision of care under its capitation contracts 

and its related fee schedules produce significant efficiencies; 

and since those same procedures and fees are used for the PPO 

contracts and result in similar utilization patterns, they will 

likely result in significant efficiencies for the PPO 

arrangements as well. 

3. Physician Network That Is Per Se Unlawful 

A group of physicians in Clarksville forms an IPA to contract 

with managed care plans. There is some limited managed care 

presence in the area, and new plans have announced their interest 

in entering. The physicians agree that the only way they can 

effectively combat the power of the plans and protect themselves 

from low fees and intrusive utilization review is to organize and 

89 
negotiate with the plans collectively through the IPA, rather 

than individually. 

Membership in the IPA is open to any licensed physician in 

Clarksville. Members contribute $2,000 each to fund the legal 

fees associated with incorporating the IPA and its operating 

expenses, including the salary of an executive director who will 

negotiate contracts on behalf of the IPA. The IPA will enter 

only into fee-for-service contracts. The doctors will not share 

substantial financial risk under the contracts. The Contracting 

Committee, in consultation with the executive director, develops 

a fee schedule. 

The IPA establishes a Quality Assurance and Utilization 

Review Committee. Upon recommendation of this committee, the 

members vote to have the IPA adopt two basic utilization review 

parameters: strict limits on documentation to be provided by 

physicians to the payers, and arbitration of disputes regarding 

plan utilization review decisions by a committee of the local 

medical society. The IPA refuses to contract with plans that do 

not accept these utilization review parameters. The IPA claims 

to have its own utilization review/quality assurance programs in 

development, but has taken very few steps to create such a 

program. It decides to rely instead on the hospital’s 

established peer review mechanisms. 

Although there is no formal exclusivity agreement, IPA 

physicians who are approached by managed care plans seeking 

contracts refer the plans to the IPA. Except for some contracts 

90 
predating the formation of the IPA, the physicians do not 

contract individually with managed care plans on terms other than 

those set by the IPA. 

Competitive Analysis 

This IPA is merely a vehicle for collective decisions by its 

physicians on price and other significant terms of dealing. The 

physicians’ purpose in forming the IPA is to increase their 

bargaining power with payers. The IPA makes no effort to 

selectively choose physicians who are likely to further the 

network’s achievement of efficiencies, and the IPA involves no 

significant integration, financial or otherwise. IPA physicians’ 

participation in the hospital’s general peer review procedures 

does not evidence integration by those physicians that is likely 

to result in significant efficiencies in the provision of 

services through the IPA. The IPA does not manage the provision 

of care or offer any substantial potential for significant 

procompetitive efficiencies. The physicians are merely 

collectively agreeing on prices they will receive for services 

rendered under IPA contracts and not to accept certain aspects of 

utilization review that they do not like. 

The physicians’ contribution of capital to form the IPA does 

not make it a legitimate joint venture. In some circumstances, 

capital contributions by an IPA’s participants can indicate that 

the participants have made a significant commitment to the 

creation of an efficiency-producing competitive entity in the 

91 
 

market.43 Capital contributions, however, can also be used to 

fund a cartel. The key inquiry is whether the contributed 

capital is being used to further the network’s capability to 

achieve substantial efficiencies. In this case, the funds are 

being used primarily to support the joint negotiation, and not to 

achieve substantial procompetitive efficiencies. Thus, the 

physicians’ agreement to bargain through the joint venture will 

be treated as per se illegal price fixing. 

4. Exclusive Physician Network Joint Venture With 

Financial Risk-Sharing And Comprising More 

Than Twenty Percent Of Physicians With Active 

Admitting Privileges At A Hospital 

County Seat is a relatively isolated, medium-sized community 

of about 350,000 residents. The closest town is 50 miles away. 

County Seat has five general acute care hospitals that offer a 

mix of basic primary, secondary, and tertiary care services. 

Five hundred physicians have medical practices based in 

County Seat, and all maintain active admitting privileges at one 

or more of County Seat's hospitals. No physician from outside 

County Seat has any type of admitting privileges at a County Seat 

hospital. The physicians represent 10 different specialties and 

are distributed evenly among the specialties, with 50 doctors 

practicing each specialty. 

43 See supra Example 1. 

92 
One hundred physicians (also distributed evenly among 

specialties) maintain active admitting privileges at County Seat 

Medical Center. County Seat's other 400 physicians maintain 

active admitting privileges at other County Seat hospitals. 

Half of County Seat Medical Center's 100 active admitting 

physicians propose to form an IPA to market their services to 

purchasers of health care services. The physicians are divided 

evenly among the specialties. Under the proposed arrangement, 

the physicians in the network joint venture would agree to 

meaningful cost containment and quality goals, including 

utilization review, quality assurance, and other measures 

designed to reduce the provision of unnecessary care to the 

plan's subscribers, and a substantial amount (in this example 

20 percent) of the compensation due to the network's physician 

participants would be withheld and distributed only if these 

measures are successfully met. This physician network joint 

venture would be exclusive: Its physician participants would not 

be free to contract individually with health plans or to join 

other physician joint ventures. 

A number of health plans that contract selectively with 

hospitals and physicians already operate in County Seat. These 

plans and local employers agree that other County Seat 

physicians, and the hospitals to which they admit, are good 

substitutes for the active admitting physicians and the inpatient 

services provided at County Seat Medical Center. Physicians with 

medical practices based outside County Seat, however, are not 

93 
good substitutes for area physicians, because such physicians 

would find it inconvenient to practice at County Seat hospitals 

due to the distance between their practice locations and County 

Seat. 

Competitive Analysis 

A key issue is whether a physician network joint venture, 

such as this IPA, comprising 50 percent of the physicians in each 

specialty with active privileges at one of five comparable 

hospitals in County Seat would fall within the antitrust safety 

zone. The physicians within the joint venture represent less 

than 20 percent of all the physicians in each specialty in County 

Seat. 

County Seat is the relevant geographic market for purposes of 

analyzing the competitive effects of this proposed physician 

joint venture. Within each specialty, physicians with admitting 

privileges at area hospitals are good substitutes for one 

another. However, physicians with practices based elsewhere are 

not considered good substitutes. 

For purposes of analyzing the effects of the venture, all of 

the physicians in County Seat should be considered market 

participants. Purchasers of health care services consider all 

physicians within each specialty, and the hospitals at which they 

have admitting privileges, to be relatively interchangeable. 

Thus, in this example, any attempt by the joint venture's 

physician participants collectively to increase the price of 

94 
physician services above competitive levels would likely lead 

third-party purchasers to recruit non-network physicians at 

County Seat Medical Center or other area hospitals. 

Because physician network joint venture participants 

constitute less than 20 percent of each group of specialists in 

County Seat and agree to share substantial financial risk, this 

proposed joint venture would fall within the antitrust safety 

zone. 

5. Physician Network Joint Venture With Financial 

Risk-Sharing And A Large Percentage Of 

Physicians In A Relatively Small Community 

Smalltown has a population of 25,000, a single hospital, and 

50 physicians, most of whom are family practitioners. All of the 

physicians practice exclusively in Smalltown and have active 

admitting privileges at the Smalltown hospital. The closest 

urban area, Big City, is located some 35 miles away and has a 

population of 500,000. A little more than half of Smalltown's 

working adults commute to work in Big City. Some of the health 

plans used by employers in Big City are interested in extending 

their network of providers to Smalltown to provide coverage for 

subscribers who live in Smalltown, but commute to work in Big 

City (coverage is to include the families of commuting 

subscribers). However, the number of commuting Smalltown 

subscribers is a small fraction of the Big City employers' total 

workforce. 

Responding to these employers' needs, a few health plans have 

asked physicians in Smalltown to organize a non-exclusive IPA 

95 
large enough to provide a reasonable choice to subscribers who 

reside in Smalltown, but commute to work in Big City. Because of 

the relatively small number of potential enrollees in Smalltown, 

the plans prefer to contract with such a physician network joint 

venture, rather than engage in what may prove to be a 

time-consuming series of negotiations with individual Smalltown 

physicians to establish a panel of physician providers there. 

A number of Smalltown physicians have agreed to form a 

physician network joint venture. The joint venture will contract 

with health plans to provide physician services to subscribers of 

the plans in exchange for a monthly capitation fee paid for each 

of the plans' subscribers. The physicians forming this joint 

venture would constitute about half of the total number of 

physicians in Smalltown. They would represent about 35 percent 

of the town's family practitioners, but higher percentages of the 

town's general surgeons (50 percent), pediatricians (50 percent), 

and obstetricians (67 percent). The health plans that serve Big 

City employers say that the IPA must have a large percentage of 

Smalltown physicians to provide adequate coverage for employees 

and their families in Smalltown and in a few scattered rural 

communities in the immediate area and to allow the doctors to 

provide coverage for each other. 

In this example, other health plans already have entered 

Smalltown, and contracted with individual physicians. They have 

made substantial inroads with Smalltown employers, signing up a 

large number of enrollees. None of these plans has had any 

96 
difficulty contracting with individual physicians, including many 

who would participate in the proposed joint venture. 

Finally, the evidence indicates that Smalltown is the 

relevant geographic market for all physician services. 

Physicians in Big City are not good substitutes for a significant 

number of Smalltown residents. 

Competitive Analysis 

This proposed physician network joint venture would not fall 

within the antitrust safety zone because it would comprise over 

30 percent of the physicians in a number of relevant specialties 

in the geographic market. However, the Agencies would not 

challenge the joint venture because a rule of reason analysis 

indicates that its formation would not likely hamper the ability 

of health plans to contract individually with area physicians or 

with other physician network joint ventures, or enable the 

physicians to raise prices above competitive levels. In 

addition, the joint venture’s agreement to accept capitated fees 

creates incentives for its physicians to achieve cost savings. 

That health plans have requested formation of this venture 

also is significant, for it suggests that the joint venture would 

offer additional efficiencies. In this instance, it appears to 

be a low-cost method for plans to enter an area without investing 

in costly negotiations to identify and contract with individual 

physicians. 

Moreover, in small markets such as Smalltown, it may be 

necessary for purchasers of health care services to contract with 

97 
a relatively large number of physicians to provide adequate 

coverage and choice for enrollees. For instance, if there were 

only three obstetricians in Smalltown, it would not be possible 

for a physician network joint venture offering obstetrical 

services to have less than 33 percent of the obstetricians in the 

relevant area. Furthermore, it may be impractical to have less 

than 67 percent in the plan, because two obstetricians may be 

needed in the venture to provide coverage for each other. 

Although the joint venture has a relatively large percentage 

of some specialties, it appears unlikely to present competitive 

concerns under the rule of reason because of three factors: 

(1) the demonstrated ability of health plans to contract with 

physicians individually; (2) the possibility that other physician 

network joint ventures could be formed; and (3) the potential 

benefits from the coverage to be provided by this physician 

network joint venture. Therefore, the Agencies would not 

challenge the joint venture. 

6. Physician Network Joint Venture With Financial Risk 

Sharing And A Large Percentage Of Physicians In A Small, 

Rural County 

Rural County has a population of 15,000, a small primary care 

hospital, and ten physicians, including seven general and family 

practitioners, an obstetrician, a pediatrician, and a general 

surgeon. All of the physicians are solo practitioners. The 

nearest urban area is about 60 miles away in Big City, which has 

a population of 300,000, and three major hospitals to which 

patients from Rural County are referred or transferred for higher 

98 
levels of hospital care. However, Big City is too far away for 

most residents of Rural County routinely to use its physicians 

for services available in Rural County. 

Insurance Company, which operates throughout the state, is 

attempting to offer managed care programs in all areas of the 

state, and has asked the local physicians in Rural County to form 

an IPA to provide services under the program to covered persons 

living in the County. No other managed care plan has attempted 

to enter the County previously. 

Initially, two of the general practitioners and two of the 

specialists express interest in forming a network, but Insurance 

Company says that it intends to market its plan to the larger 

local employers, who need broader geographic and specialty 

coverage for their employees. Consequently, Insurance Company 

needs more of the local general practitioners and the one 

remaining specialist in the IPA to provide adequate geographic, 

specialty, and backup coverage to subscribers in Rural County. 

Eventually, four of the seven general practitioners and the one 

remaining specialist join the IPA and agree to provide services 

to Insurance Company's subscribers, under contracts providing for 

capitation. While the physicians' participation in the IPA is 

structured to be non-exclusive, no other managed care plan has 

yet entered the local market or approached any of the physicians 

about joining a different provider panel. In discussing the 

formation of the IPA with Insurance Company, a number of the 

physicians have made clear their intention to continue to 

99 
practice outside the IPA and have indicated they would be 

interested in contracting individually with other managed care 

plans when those plans expand into Rural County. 

Competitive Analysis 

This proposed physician network joint venture would not fall 

within the antitrust safety zone because it would comprise over 

30 percent of the general practitioners in the geographic market. 

Under the circumstances, a rule of reason analysis indicates that 

the Agencies would not challenge the formation of the joint 

venture, for the reasons discussed below. 

For purposes of this analysis, Rural County is considered the 

relevant geographic market. Generally, the Agencies will closely 

examine joint ventures that comprise a large percentage of 

physicians in the relevant market. However, in this case, the 

establishment of the IPA and its inclusion of more than half of 

the general practitioners and all of the specialists in the 

network is the result of the payer's expressed need to have more 

of the local physicians in its network to sell its product in the 

market. Thus, the level of physician participation in the 

network does not appear to be overinclusive, but rather appears 

to be the minimum necessary to meet the employers' needs. 

Although the IPA has more than half of the general 

practitioners and all of the specialists in it, under the 

particular circumstances this does not, by itself, raise 

sufficient concerns of possible foreclosure of entry by other 

managed care plans, or of the collective ability to raise prices 

100 
above competitive levels, to warrant antitrust challenge to the 

joint venture by the Agencies. Because it is the first such 

joint venture in the county, there is no way absolutely to verify 

at the outset that the joint venture in fact will be nonexclusive. However, the physicians' participation in the IPA is 

formally non-exclusive, and they have expressed a willingness to 

consider joining other managed care programs if they begin 

operating in the area. Moreover, the three general practitioners 

who are not members of the IPA are available to contract with 

other managed care plans. The IPA also was established with 

participation by the local area physicians at the request of 

Insurance Company, indicating that this structure was not 

undertaken as a means for the physicians to increase prices or 

prevent entry of managed care plans. 

Finally, the joint venture can benefit consumers in Rural 

County through the creation of efficiencies. The physicians have 

jointly put themselves at financial risk to control the use and 

cost of health care services through capitation. To make the 

capitation arrangement financially viable, the physicians will 

have to control the use and cost of health care services they 

provide under Insurance Company's program. Through the 

physicians' network joint venture, Rural County residents will be 

offered a beneficial product, while competition among the 

physicians outside the network will continue. 

Given these facts, the Agencies would not challenge the joint 

venture. If, however, it later became apparent that the 

101 
physicians' participation in the joint venture in fact was 

exclusive, and consequently other managed care plans that wanted 

to enter the market and contract with some or all of the 

physicians at competitive terms were unable to do so, the 

Agencies would re-examine the joint venture's legality. The 

joint venture also would raise antitrust concerns if it appeared 

that participation by most of the local physicians in the joint 

venture resulted in anticompetitive effects in markets outside 

the joint venture, such as uniformity of fees charged by the 

physicians in their solo medical practices. 

7. Physician Network Joint Venture With No Price 

Agreement And Involving All Of The Physicians 

In A Small, Rural County 

Rural County has a population of 10,000, a small primary care 

hospital, and six physicians, consisting of a group practice of 

three family practitioners, a general practitioner, an 

obstetrician, and a general surgeon. The nearest urban area is 

about 75 miles away in Big City, which has a population of 

200,000, and two major hospitals to which patients from Rural 

County are referred or transferred for higher levels of hospital 

care. Big City is too far away, however, for most residents of 

Rural County to use for services available in Rural County. 

HealthCare, a managed care plan headquartered in another 

state, is thinking of marketing a plan to the larger employers in 

Rural County. However, it finds that the cost of contracting 

individually with providers, administering the system, and 

overseeing the quality of care in Rural County is too high on a 

102 
per capita basis to allow it to convince employers to switch from 

indemnity plans to its plan. HealthCare believes its plan would 

be more successful if it offered higher quality and better access 

to care by opening a clinic in the northern part of the county 

where no physicians currently practice. 

All of the local physicians approach HealthCare about 

contracting with their recently-formed, non-exclusive, IPA. The 

physicians are willing to agree through their IPA to provide 

services at the new clinic that HealthCare will establish in the 

northern part of the county and to implement the utilization 

review procedures that HealthCare has adopted in other parts of 

the state. 

HealthCare wants to negotiate with the new IPA. It believes 

that the local physicians collectively can operate the new clinic 

more efficiently than it can from its distant headquarters, but 

HealthCare also believes that collectively negotiating with all 

of the physicians will result in it having to pay higher fees or 

capitation rates. Thus, it encourages the IPA to appoint an 

agent to negotiate the non-fee related aspects of the contracts 

and to facilitate fee negotiations with the group practice and 

the individual doctors. The group practice and the individual 

physicians each will sign and negotiate their own individual 

contracts regarding fees and will unilaterally determine whether 

to contract with HealthCare, but will agree through the IPA to 

provide physician, administrative, and utilization review 

services. The agent will facilitate these individual fee 

103 
negotiations by discussing separately and confidentially with 

each physician the physician's fee demands and presenting the 

information to HealthCare. No fee information will be shared 

among the physicians. 

Competitive Analysis 

For purposes of this analysis, Rural County is considered the 

relevant geographic market. Generally, the Agencies are 

concerned with joint ventures that comprise all or a large 

percentage of the physicians in the relevant market. In this 

case, however, the joint venture appears on balance to be 

procompetitive. The potential for competitive harm from the 

venture is not great and is outweighed by the efficiencies likely 

to be generated by the arrangement. 

The physicians are not jointly negotiating fees or engaging 

in other activities that would be viewed as per se antitrust 

violations. Therefore, the IPA would be evaluated under the rule 

of reason. Any possible competitive harm would be balanced 

against any likely efficiencies to be realized by the venture to 

see whether, on balance, the IPA is anticompetitive or 

procompetitive. 

Because the IPA is non-exclusive, the potential for 

competitive harm from foreclosure of competition is reduced. Its 

physicians are free to contract with other managed care plans or 

individually with HealthCare if they desire. In addition, 

potential concerns over anticompetitive pricing are minimized 

because physicians will continue to negotiate prices 

104 
individually. Although the physicians are jointly negotiating 

non-price terms of the contract, agreement on these terms appears 

to be necessary to the successful operation of the joint venture. 

The small risk of anticompetitive harm from this venture is 

outweighed by the substantial procompetitive benefits of improved 

quality of care and access to physician services that the venture 

will engender. The new clinic in the northern part of the county 

will make it easier for residents of that area to receive the 

care they need. Given these facts, the Agencies would not 

challenge the joint venture. 

*** 

Physicians who are considering forming physician network 

joint ventures and are unsure of the legality of their conduct 

under the antitrust laws can take advantage of the Department of 

Justice's expedited business review procedure announced on 

December 1, 1992 (58 Fed. Reg. 6132 (1993)) or the Federal Trade 

Commission's advisory opinion procedure contained at 16 C.F.R. 

§§ 1.1-1.4 (1993). The Agencies will respond to a business 

review or advisory opinion request on behalf of physicians who 

are considering forming a network joint venture within 90 days 

after all necessary information is submitted. The Department's 

December 1, 1992 announcement contains specific guidance about 

the information that should be submitted. 

105 
 

 9. STATEMENT OF DEPARTMENT OF JUSTICE AND FEDERAL TRADE 

COMMISSION ENFORCEMENT POLICY ON 

MULTIPROVIDER NETWORKS 

Introduction 

The health care industry is changing rapidly as it looks for 

innovative ways to control costs and efficiently provide quality 

services. Health care providers are forming a wide range of new 

relationships and affiliations, including networks among 

otherwise competing providers, as well as networks of providers 

offering complementary or unrelated services.44 These 

affiliations, referred to herein as multiprovider networks, can 

offer significant procompetitive benefits to consumers. They 

also can present antitrust questions, particularly if the network 

includes otherwise competing providers. 

As used in this statement, multiprovider networks are 

ventures among providers that jointly market their health care 

services to health plans and other purchasers. Such ventures may 

contract to provide services to subscribers at jointly determined 

prices and agree to controls aimed at containing costs and 

44 The multiprovider networks covered by this statement 

include all types and combinations of health care providers, such 

as networks involving just a single type of provider (e.g., 

dentists or hospitals) or a single provider specialty (e.g., 

orthodontists), as well as networks involving more than one type 

of provider (e.g., physician-hospital organizations or networks 

involving both physician and non-physician professionals). 

Networks containing only physicians, which are addressed in 

detail in the preceding enforcement policy statement, are a 

particular category of multiprovider network. Many of the issues 

relating to multiprovider networks in general are the same as 

those that arise, and are addressed, in connection with physician 

network joint ventures, and the analysis often will be very 

similar for all such arrangements. 

106 
assuring quality. Multiprovider networks vary greatly regarding 

the providers they include, the contractual relationships among 

those providers, and the efficiencies likely to be realized by 

the networks. Competitive conditions in the markets in which 

such networks operate also may vary greatly. 

In this statement, the Agencies describe the antitrust 

principles that they apply in evaluating multiprovider networks, 

address some issues commonly raised in connection with the 

formation and operation of such networks, and present examples of 

the application of antitrust principles to hypothetical 

multiprovider networks. Because multiprovider networks involve a 

large variety of structures and relationships among many 

different types of health care providers, and new arrangements 

are continually developing, the Agencies are unable to establish 

a meaningful safety zone for these entities. 

A. Determining When Agreements Among Providers In A 

Multiprovider Network Are Analyzed Under The Rule 

Of Reason 

Antitrust law condemns as per se illegal naked agreements 

among competitors that fix prices or allocate markets. Where 

competitors economically integrate in a joint venture, however, 

such agreements, if reasonably necessary to accomplish the 

procompetitive benefits of the integration, are analyzed under 

the rule of reason.45 In accord with general antitrust 

45 In a network limited to providers who are not actual or 

potential competitors, the providers generally can agree on the 

prices to be charged for their services without the kinds of 

(continued...) 

107 
 

 

principles, multiprovider networks will be evaluated under the 

rule of reason, and will not be viewed as per se illegal, if the 

providers’ 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 providers are reasonably necessary to 

realize those efficiencies.46 

In some multiprovider networks, significant efficiencies may 

be achieved through agreement by the competing providers to share 

substantial financial risk for the services provided through the 

network.47 In such cases, the setting of price would be integral 

to the network’s use of such an arrangement and, therefore, would 

warrant evaluation under the rule of reason. 

The following are examples of some types of arrangements 

(...continued) 

economic integration discussed below. 

46 In some cases, the combination of the competing providers 

in the network may enable them to offer what could be considered 

to be a new product producing substantial efficiencies, and 

therefore the venture will be analyzed under the rule of reason. 

See Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 

441 U.S. 1 (1979) (competitors’ integration and creation of a 

blanket license for use of copyrighted compositions result in 

efficiencies so great as to make the blanket license a "different 

product" from the mere combination of individual competitors and, 

therefore, joint pricing of the blanket license is subject to 

rule of reason analysis, rather than the per se rule against 

price fixing). The Agencies’ analysis will focus on the 

efficiencies likely to be produced by the venture, and the 

relationship of any price agreements to the achievement of those 

efficiencies, rather than on whether the venture creates a 

product that can be labeled “new” or “different.” 

47 The existence of financial risk sharing does not depend 

on whether, under applicable state law, the network is considered 

an insurer. 

108 
through which substantial financial risk can be shared among 

competitors in a multiprovider network: 

(1) agreement by the venture to provide services to a health 

plan at a "capitated" rate;48 

(2) agreement by the venture to provide designated services 

or classes of services to a health plan for a 

predetermined percentage of premium or revenue from the 

plan;49 

(3) use by the venture of significant financial incentives 

for its provider participants, as a group, to achieve 

specified cost-containment goals. Two methods by which 

the venture can accomplish this are: 

(a) withholding from all provider participants a 

substantial amount of the compensation due to them, 

with distribution of that amount to the 

participants based on group performance in meeting 

the cost-containment goals of the network as a 

whole; or 

(b) establishing overall cost or utilization targets 

for the network as a whole, with the provider 

participants subject to subsequent substantial 

financial rewards or penalties based on group 

performance in meeting the targets; and 

(4) agreement by the venture to provide a complex or 

extended course of treatment that requires the 

substantial coordination of care by different types of 

providers offering a complementary mix of services, for 

a fixed, predetermined payment, where the costs of that 

48 A "capitated" rate is a fixed, predetermined payment per 

covered life (the "capitation") from a health plan to the joint 

venture in exchange for the joint venture’s (not merely an 

individual provider’s) furnishing and guaranteeing provision of a 

defined set of covered services to covered individuals for a 

specified period, regardless of the amount of services actually 

provided. 

49 This is similar to a capitation arrangement, except that 

the amount of payment to the network can vary in response to 

changes in the health plan’s premiums or revenues. 

109 
course of treatment for any individual patient can vary 

greatly due to the individual patient’s condition, the 

choice, complexity, or length of treatment, or other 

factors.50 

The Agencies recognize that new types of risk-sharing 

arrangements may develop. The preceding examples do not 

foreclose consideration of other arrangements through which the 

participants in a multiprovider network joint venture may share 

substantial financial risk in the provision of health care 

services or products through the network.51 Organizers of 

multiprovider networks who are uncertain whether their proposed 

arrangements constitute substantial financial risk sharing for 

purposes of this policy statement are encouraged to take 

advantage of the Agencies’ expedited business review and advisory 

opinion procedures. 

Multiprovider networks that do not involve the sharing of 

substantial financial risk may also involve sufficient 

integration to demonstrate that the venture is likely to produce 

50 Such arrangements are sometimes referred to either as 

"global fees" or “all-inclusive case rates.” Global fee or allinclusive case rate arrangements that involve financial risk 

sharing as contemplated by this example will require that the 

joint venture (not merely an individual provider participant) 

assume the risk or benefit that the treatment provided through 

the network may either exceed, or cost less than, the 

predetermined payment. 

51 The manner of dividing revenues among the network’s 

provider participants generally does not raise antitrust issues 

so long as the competing providers in a network share substantial 

financial risk. For example, capitated networks frequently 

distribute income among their participants using fee-for-service 

payment with a partial withhold fund to cover the risk of having 

to provide more services than were originally anticipated. 

110 
significant efficiencies. For example, as discussed in the 

Statement Of Enforcement Policy On Physician Network Joint 

Ventures, substantial clinical integration among competing 

physicians in a network who do not share substantial financial 

risk may produce efficiency benefits that justify joint 

pricing.52 However, given the wide range of providers who may 

participate in multiprovider networks, the types of clinical 

integration and efficiencies available to physician network joint 

ventures may not be relevant to all multiprovider networks. 

Accordingly, the Agencies will consider the particular nature of 

the services provided by the network in assessing whether the 

network has the potential for producing efficiencies that warrant 

rule of reason treatment. In all cases, the Agencies’ analysis 

will focus on substance, not form, in assessing a network’s 

likelihood of producing significant efficiencies. To the extent 

that agreements on prices to be charged for the integrated 

provision of services promote the venture’s achievement of 

efficiencies, they will be evaluated under the rule of reason. 

A multiprovider network also might include an agreement among 

competitors on service allocation or specialization. The 

Agencies would examine the relationship between the agreement and 

efficiency-enhancing joint activity. If such an agreement is 

reasonably necessary for the network to realize significant 

procompetitive benefits, it similarly would be subject to rule of 

52 See Section B(1) of the Agencies’ Statement Of Enforcement 

Policy On Physician Network Joint Ventures (pp. 71-74). 

111 
 

reason analysis.53 For example, competing hospitals in an 

integrated multiprovider network might need to agree that only 

certain hospitals would provide certain services to network 

patients in order to achieve the benefits of the integration.54 

The hospitals, however, would not necessarily be permitted to 

agree on what services they would provide to non-network 

patients.55 

B. Applying The Rule Of Reason 

A rule of reason analysis determines whether the formation 

and operation of the joint venture may have a substantial 

anticompetitive effect and, if so, whether that potential effect 

is outweighed by any procompetitive efficiencies resulting from 

53 A unilateral decision to eliminate a service or 

specialization, however, does not generally present antitrust 

issues. For example, a hospital or other provider unilaterally 

may decide to concentrate on its more profitable services and not 

offer other less profitable services, and seek to enter a network 

joint venture with competitors that still provides the latter 

services. If such a decision is made unilaterally, rather than 

pursuant to an express or implied agreement, the arrangement 

would not be considered a per se illegal market allocation. 

54 Hospitals, even if they do not belong to a multiprovider 

network, also could agree jointly to develop and operate new 

services that the participants could not profitably support 

individually or through a less inclusive joint venture, and to 

decide where the jointly operated services are to be located. 

Such joint ventures would be analyzed by the Agencies under the 

rule of reason. The Statement of Enforcement Policy On Hospital 

Joint Ventures Involving Specialized Clinical Or Other Expensive 

Health Care Services offers additional guidance on joint ventures 

among hospitals to provide such services. 

55 The Agencies’ analysis would take into account that 

agreements among multiprovider network participants relating to 

the offering of services might be more likely than those relating 

to price to affect participants' competition outside the network, 

and to persist even if the network is disbanded. 

112 
the venture. The rule of reason analysis takes into account 

characteristics of the particular multiprovider network and the 

competitive environment in which it operates to determine the 

network's likely effect on competition. 

A determination about the lawfulness of a multiprovider 

network’s activity under the rule of reason sometimes can be 

reached without an extensive inquiry under each step of the 

analysis. For example, a multiprovider network that involves 

substantial integration may include a relatively small percentage 

of the providers in each relevant product market on a nonexclusive basis. In that case, the Agencies may be able to 

conclude expeditiously that the network is unlikely to be 

anticompetitive, based on the competitive environment in which it 

operates. In assessing the competitive environment, the Agencies 

would consider such market factors as the number, type, and size 

of managed care plans operating in the area, the extent of 

provider participation in those plans, and the economic 

importance of the managed care plans to area providers. 

Alternatively, for example, if a restraint that facially appears 

to be of a kind that would always or almost always tend to reduce 

output or increase prices, but has not been considered per se 

unlawful, is not reasonably necessary to the creation of 

113 
 

efficiencies, the Agencies will likely challenge the restraint 

without an elaborate analysis of market definition and market 

56 power. 

The steps ordinarily involved in a rule of reason analysis of 

multiprovider networks are set forth below. 

1. Market Definition 

The Agencies will evaluate the competitive effects of 

multiprovider networks in each of the relevant markets in which 

they operate or have substantial impact. In defining the 

relevant product and geographic markets, the Agencies look to 

what substitutes, as a practical matter, are reasonably available 

to consumers for the services in question.57 

A multiprovider network can affect markets for the provision 

of hospital, medical, and other health care services, and health 

insurance/financing markets. The possible product markets for 

analyzing the competitive effects of multiprovider networks 

likely would include both the market for such networks 

themselves, if there is a distinct market for such networks, and 

the markets for service components of the network that are, or 

could be, sold separately outside the network. For example, if 

two hospitals formed a multiprovider network with their medical 

56 See FTC v. Indiana Federation of Dentists, 476 U.S. 447, 

459-60 (1986). 

57 A more extensive discussion of how the Agencies define 

relevant markets is contained in the Agencies' 1992 Horizontal 

Merger Guidelines. 

114 
and other health care professional staffs, the Agencies would 

consider potential competitive effects in each market affected by 

the network, including but not necessarily limited to the markets 

for inpatient hospital services, outpatient services, each 

physician and non-physician health care service provided by 

network members, and health insurance/financing markets whose 

participants may deal with the network and its various types of 

health care providers. 

The relevant geographic market for each relevant product 

market affected by the multiprovider network will be determined 

through a fact-specific analysis that focuses on the location of 

reasonable alternatives. The relevant geographic markets may be 

broader for some product markets than for others. 

2. Competitive Effects 

In applying the rule of reason, the Agencies will examine 

both the potential "horizontal" and "vertical" effects of the 

arrangement. Agreements between or among competitors (e.g., 

competing hospitals or competing physicians) are considered 

"horizontal" under the antitrust laws. Agreements between or 

among parties that are not competitors (such as a hospital and a 

physician in a physician-hospital organization ("PHO")), may be 

considered "vertical" in nature. 

a. Horizontal Analysis 

In evaluating the possible horizontal competitive effects of 

multiprovider networks, the Agencies will define the relevant 

markets (as discussed earlier) and evaluate the network's likely 

115 
 

overall competitive effects considering all market conditions. 

Determining market share and concentration in the relevant 

markets is often an important first step in analyzing a network's 

competitive effects. For example, in analyzing a PHO, the 

Agencies will consider the network's market share (and the market 

concentration) in such service components as inpatient hospital 

services (as measured by such indicia as number of institutions, 

number of hospital beds, patient census, and revenues), physician 

services (in individual physician specialty or other appropriate 

service markets)58, and any other services provided by competing 

health care providers, institutional or noninstitutional, 

participating in the network. 

If a particular multiprovider network had a substantial share 

of any of the relevant service markets, it could, depending on 

other factors, increase the price of such services above 

competitive levels. For example, a network that included most or 

all of the surgeons in a relevant geographic market could create 

market power in the market for surgical services and thereby 

permit the surgeons to increase prices. 

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 

58 Although all services provided by each physician 

specialty or category of non-physician provider might be a 

separate relevant service market, there may be instances in which 

significant overlap of services provided by different physician 

specialties or categories of providers justifies including 

services from more than one physician specialty or provider 

category in the same market. 

116 
 

 

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.59 It 

also could reduce competition between the hospital and nonhospital providers of certain services, such as outpatient 

surgery. 

Although market share and concentration are useful starting 

points in analyzing the competitive effects of multiprovider 

networks, the Agencies' ultimate conclusion is based upon a more 

comprehensive analysis. This will include an analysis of 

collateral agreements and spillover effects.60 In addition, in 

assessing the likely competitive effects of a multiprovider 

network, the Agencies are particularly interested in the ability 

and willingness of health plans and other purchasers of health 

care services to switch between different health care providers 

or networks in response to a price increase, and the factors that 

determine the ability and willingness of plans to make such 

changes. The Agencies will consider not only the proportion of 

the providers in any relevant market who are in the network, but 

also the incentives faced by providers in the network, and 

whether different groups of providers in a network may have 

significantly different incentives that would reduce the 

59 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. 

60 See Statement of Enforcement Policy on Physician Network 

Joint Ventures, pp.61-105. 

117 
 

 

likelihood of anticompetitive conduct.61 If plans can contract 

at competitive terms with other networks or with individual 

providers, and can obtain a similar quality and range of services 

for their enrollees, the network is less likely to raise 

competitive concerns. 

In examining a multiprovider network’s overall competitive 

effect, the Agencies will examine whether the competing providers 

in the network have agreed among themselves to offer their 

services exclusively through the network or are otherwise 

operating, or are likely to operate, exclusively. Such exclusive 

arrangements are not necessarily anticompetitive.62 Exclusive 

networks, however, mean that the providers in the network are not 

available to join other networks or contract individually with 

health plans, and thus, in some circumstances, exclusive networks 

can impede or preclude competition among networks and among 

individual providers. In determining whether an exclusive 

arrangement of this type raises antitrust concerns, the Agencies 

will examine the market share of the providers subject to the 

exclusivity arrangement; the terms of the exclusive arrangement, 

such as its duration and providers' ability and financial 

incentives or disincentives to withdraw from the arrangement; the 

number of providers that need to be included for the network and 

61 See discussion in Statement of Enforcement Policy on 

Physician Network Joint Ventures, pp. 61-105. 

62 For example, an exclusive arrangement may help ensure the 

multiprovider network's ability to serve its subscribers and 

increase its providers' incentives to further the interests of 

the network. 

118 
potentially competing networks to compete effectively; and the 

justification for the exclusivity arrangement. 

Networks also may limit or condition provider participants’ 

freedom to contract outside the network in ways that fall short 

of a commitment of full exclusivity. The Agencies recognize that 

the competitive impact of exclusive arrangements or other 

limitations on the ability of a network’s provider participants 

to contract outside the network can vary greatly. 

b. Vertical Analysis 

In addition to the horizontal issues discussed above, 

multiprovider networks also can raise vertical issues. 

Generally, vertical concerns can arise if a network’s power in 

one market in which it operates enables it to limit competition 

in another market. 

Some multiprovider networks involve "vertical" exclusive 

arrangements that restrict the providers in one market from 

dealing with non-network providers that compete in a different 

market, or that restrict network provider participants' dealings 

with health plans or other purchasers. For example, a 

multiprovider network owned by a hospital and individually 

contracting with its participating physicians might limit the 

incentives or ability of those physicians to participate in other 

networks. Similarly, a hospital might use a multiprovider 

network to block or impede other hospitals from entering a market 

or from offering competing services. 

119 
In evaluating whether such exclusive arrangements raise 

antitrust concerns, the Agencies will examine the degree to which 

the arrangement may limit the ability of other networks or health 

plans to compete in the market. The factors the Agencies will 

consider include those set forth in the discussion of exclusive 

arrangements on pages 118-119, above. 

For example, if the multiprovider network has exclusive 

arrangements with only a small percentage of the physicians in a 

relevant market, and there are enough suitable alternative 

physicians in the market to allow other competing networks to 

form, the exclusive arrangement is unlikely to raise antitrust 

concerns. On the other hand, a network might contract 

exclusively with a large percentage of physicians in a relevant 

market, for example general surgeons. In that case, if 

purchasers or payers could not form a satisfactory competing 

network using the remaining general surgeons in the market, and 

could not induce new general surgeons to enter the market, those 

purchasers and payers would be forced to use this network, rather 

than put together a panel consisting of those providers of each 

needed service who offer the most attractive combination of price 

and quality. Thus, the exclusive arrangement would be likely to 

restrict competition unreasonably, both among general surgeons 

(the horizontal effect) and among health care providers in other 

service markets and payers (the vertical effects). 

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The Agencies recognize that exclusive arrangements, whether 

they are horizontal or vertical, may not be explicit, so that 

labeling a multiprovider network as "non-exclusive" will not be 

determinative. In some cases, providers will refuse to contract 

with other networks or purchasers, even though they have not 

entered into an agreement specifically forbidding them from doing 

so. For example, if a network includes a large percentage of 

physicians in a certain market, those physicians may perceive 

that they are likely to obtain more favorable terms from plans by 

dealing collectively through one network, rather than as 

individuals. 

In determining whether a network is truly non-exclusive, the 

Agencies will consider a number of factors, including the 

following: 

(1) that viable competing networks or managed care plans 

with adequate provider participation currently exist in 

the market; 

(2) that providers in the network actually individually 

participate in, or contract with, other networks or 

managed care plans, or there is other evidence of their 

willingness and incentive to do so; 

(3) that providers in the network earn substantial revenue 

from other networks or through individual contracts with 

managed care plans; 

(4) the absence of any indications of substantial 

departicipation from other networks or managed care 

plans in the market; and 

(5) the absence of any indications of coordination among the 

providers in the network regarding price or other 

competitively significant terms of participation in 

other networks or managed care plans. 

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c. Exclusion Of Particular Providers 

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 price concessions or 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 nonparticipant providers an incentive to form competing networks. 

A rule of reason analysis usually is applied in judging the 

legality of a multiprovider network’s exclusion of providers or 

classes of providers from the network, or its policies on 

referring enrollees to network providers. The focus of the 

analysis is not on whether a particular provider has been harmed 

by the exclusion or referral policies, but rather whether the 

conduct reduces competition among providers in the market and 

thereby harms consumers. Where other networks offering the same 

types of services exist or could be formed, there are not likely 

to be significant competitive concerns associated with the 

exclusion of particular providers by particular networks. 

Exclusion or referral policies may present competitive concerns, 

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however, if providers or classes of providers are unable to 

compete effectively without access to the network, and 

competition is thereby harmed. In assessing such situations, the 

Agencies will consider whether there are procompetitive reasons 

for the exclusion or referral policies. 

3. Efficiencies 

Finally, the Agencies will balance any potential 

anticompetitive effects of the multiprovider network against the 

potential efficiencies associated with its formation and 

operation. The greater the network's likely anticompetitive 

effects, the greater must be the network's likely efficiencies. 

In assessing efficiency claims, the Agencies focus on net 

efficiencies that will be derived from the operation of the 

network and that result in lower prices or higher quality to 

consumers. The Agencies will not accept claims of efficiencies 

if the parties reasonably can achieve equivalent or comparable 

savings through significantly less anticompetitive means. In 

making this assessment, however, the Agencies will not search for 

a theoretically least restrictive alternative that is not 

practical given business realities. 

Experience indicates that, in general, more significant 

efficiencies are likely to result from a multiprovider network 

joint venture’s substantial financial risk-sharing or substantial 

clinical integration. However, the Agencies will consider a 

broad range of possible cost savings, including improved cost 

123 
controls, case management and quality assurance, economies of 

scale, and reduced administrative or transaction costs. 

In assessing the likelihood that efficiencies will be 

realized, the Agencies recognize that competition is one of the 

strongest motivations for firms to lower prices, reduce costs, 

and provide higher quality. Thus, the greater the competition 

facing the network, the more likely the network will actually 

realize potential efficiencies that would benefit consumers. 

4. Information Used In The Analysis 

In conducting a rule of reason analysis, the Agencies rely 

upon a wide variety of data and information, including the 

information supplied by the participants in the multiprovider 

network, purchasers, providers, consumers, and others familiar 

with the market in question. The Agencies may interview 

purchasers of health care services, including self-insured 

employers and other employers that offer health benefits, and 

health plans (such as HMOs and PPOs), competitors of the 

providers in the network, and any other parties who may have 

relevant information for analyzing the competitive effects of the 

network. 

The Agencies do not simply count the number of parties who 

support or oppose the formation of the multiprovider network. 

Instead, the Agencies seek information concerning the competitive 

dynamics in the particular community where the network is 

forming. For example, in defining relevant markets, the Agencies 

are likely to give substantial weight to information provided by 

124 
 

purchasers or payers who have attempted to switch between 

providers in the face of a price increase. Similarly, an 

employer or payer with locations in several communities may have 

had experience with a network comparable to the proposed network, 

and thus be able to provide the Agencies with useful information 

about the likely effect of the proposed network, including its 

potential competitive benefits. 

In assessing the information provided by various parties, the 

Agencies take into account the parties' economic incentives and 

interests. In addition, the Agencies attach less significance to 

opinions that are based on incomplete, biased, or inaccurate 

information, or opinions of those who, for whatever reason, may 

be simply indifferent to the potential for anticompetitive harm. 

C. Arrangements That Do Not Involve Horizontal Agreements On 

Prices Or Price-Related Terms 

Some networks that are not substantially integrated use a 

variety of “messenger model” arrangements to facilitate 

contracting between providers and payers and avoid price-fixing 

agreements among competing network providers. Arrangements that 

are designed simply to minimize the costs associated with the 

contracting process, and that do not result in a collective 

determination by the competing network providers on prices or 

price-related terms, are not per se illegal price fixing.63 

Messenger models can be organized and operate in a variety of 

ways. For example, network providers may use an agent or third 

63 See infra Example 4. 

125 
 

party to convey to purchasers information obtained individually 

from the providers about the prices or price-related terms that 

the providers are willing to accept.64 In some cases, the agent 

may convey to the providers all contract offers made by 

purchasers, and each provider then makes an independent, 

unilateral decision to accept or reject the contract offers. In 

others, the agent may have received from individual providers 

some authority to accept contract offers on their behalf. The 

agent also may help providers understand the contracts offered, 

for example by providing objective or empirical information about 

the terms of an offer (such as a comparison of the offered terms 

to other contracts agreed to by network participants). 

The key issue in any messenger model arrangement is whether 

the arrangement creates or facilitates an agreement among 

competitors on prices or price-related terms. Determining 

whether there is such an agreement is a question of fact in each 

case. The Agencies will examine whether the agent facilitates 

collective decision-making by network providers, rather than 

independent, unilateral, decisions.65 In particular, the 

64 Guidance about the antitrust standards applicable to 

collection and exchange of fee information can be found in the 

Statement of Enforcement Policy On Providers' Collective 

Provision Of Fee-Related Information To Purchasers Of Health Care 

Services, and the Statement of Enforcement Policy On Provider 

Participation In Exchanges Of Price And Cost Information. 

65 Use of an intermediary or "independent" third party to 

convey collectively determined price offers to purchasers or to 

negotiate agreements with purchasers, or giving to individual 

providers an opportunity to "opt" into, or out of, such 

agreements does not negate the existence of an agreement. 

126 
Agencies will examine whether the agent coordinates the 

providers’ responses to a particular proposal, disseminates to 

network providers the views or intentions of other network 

providers as to the proposal, expresses an opinion on the terms 

offered, collectively negotiates for the providers, or decides 

whether or not to convey an offer based on the agent's judgment 

about the attractiveness of the prices or price-related terms. 

If the agent engages in such activities, the arrangement may 

amount to a per se illegal price-fixing agreement. 

D. Examples Of Multiprovider Network Joint Ventures 

The following are four examples of how the Agencies would 

apply the principles set forth in this statement to specific 

multiprovider network joint ventures, including: 1) a PHO 

involving substantial clinical integration, that does not raise 

significant competitive concerns under the rule of reason; 2) a 

PHO providing services on a per case basis, that would be 

analyzed under the rule of reason; 3) a PHO involving substantial 

financial risk sharing and including all the physicians in a 

small rural county, that does not raise competitive concerns 

under the rule of reason; and 4) a PHO that does not involve 

horizontal agreements on price. 

1. PHO Involving Substantial Clinical Integration 

Roxbury is a relatively isolated, medium-sized city. For the 

purposes of this example, the services provided by primary care 

physicians and those provided by the different physician 

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specialists each constitute a relevant product market; and the 

relevant geographic market for each of them is Roxbury. 

Several HMOs and other significant managed care plans operate 

in Roxbury. A substantial proportion of insured individuals are 

enrolled in these plans, and enrollment in managed care is 

expected to increase. Many physicians in each of the specialties 

and Roxbury’s four hospitals participate in more than one of 

these plans. There is no significant overlap among the 

participants on the physician panels of many of these plans, nor 

among the active medical staffs of the hospitals, except in a few 

specialties. Most plans include only 2 or 3 of Roxbury’s 

hospitals, and each hospital is a substitute for any other. 

One of Roxbury’s hospitals and the physicians on its active 

medical staff establish a PHO to assume greater responsibility 

for managing the cost and quality of care rendered to Roxbury 

residents who are members of health plans. They hope to reduce 

costs while maintaining or improving the quality of care, and 

thus to attract more managed care patients to the hospital and 

their practices. 

The PHO will implement systems to establish goals relating to 

quality and appropriate utilization of services by PHO 

participants, regularly evaluate both the hospital’s and each 

individual doctor’s and the network’s aggregate performance 

concerning those goals, and modify the hospital’s and individual 

participants’ actual practices, where necessary, based on those 

evaluations. The PHO will engage in case management, 

128 
preadmission authorization of some services, and concurrent and 

retrospective review of inpatient stays. In addition, the PHO is 

developing practice standards and protocols to govern treatment 

and utilization of services, and it will actively review the care 

rendered by each doctor in light of these standards and 

protocols. 

There is a significant investment of capital to purchase the 

information systems necessary to gather aggregate and individual 

data on the cost, quantity, and nature of services provided or 

ordered by the hospital and PHO physicians; to measure 

performance of the PHO, the hospital, and the individual doctors 

against cost and quality benchmarks; and to monitor patient 

satisfaction. The PHO will provide payers with detailed reports 

on the cost and quantity of services provided, and on the 

network’s success in meeting its goals. 

The PHO will hire a medical director and support staff to 

perform the above functions and to coordinate patient care in 

specific cases. The doctors and the hospital’s administrative 

staff also have invested appreciable time in developing the 

practice standards and protocols, and will continue actively to 

monitor care provided through the PHO. PHO physicians who fail 

to adhere to the network’s standards and protocols will be 

subject to remedial action, including the possibility of 

expulsion from the network. 

Under PHO contracts, physicians will be paid by health plans 

on a fee-for-service basis; the hospital will be paid a set 

129 
amount for each day a covered patient is in the hospital, and 

will be paid on a fee-for-service basis for other services. The 

physicians will not share substantial financial risk for the cost 

of services rendered to covered individuals through the network. 

The PHO will retain an agent to develop a fee schedule, negotiate 

fees, and contract with payers. Information about what 

participating doctors charge non-network patients will not be 

disseminated to participants of the PHO, and the doctors will not 

agree on the prices they will charge patients not covered by PHO 

contracts. 

All members of the hospital’s medical staff join the PHO, 

including its three geographically dispersed primary care group 

practices that together account for about 25 percent of the 

primary care doctors in Roxbury. These primary care doctors 

generally refer their patients to specialists on the hospital’s 

active medical staff. The PHO includes all primary care doctors 

and specialists on the hospital’s medical staff because of those 

established referral relationships with the primary care doctors, 

the admitting privileges all have at the hospital, the quality of 

care provided by the medical staff, their commitment to cooperate 

with the goals of the PHO, and the need to provide convenient 

referral services to patients of the primary care doctors. 

Participating specialists include from 20 to 35 percent of 

specialists in each relevant market, depending on the specialty. 

Hospital and physician participation in the PHO is non-exclusive. 

Many PHO participants, including the hospital, already do and are 

130 
 

expected to continue to participate in other managed care plans 

and earn substantial income from those plans. 

Competitive Analysis 

The Agencies would analyze the PHO under the rule of reason 

because it offers the potential for creating significant 

efficiencies and the price agreement among the physicians is 

reasonably necessary to realize those efficiencies. Prior to 

contracting on behalf of competing physicians, the PHO will 

develop mechanisms to provide cost-effective, quality care, 

including standards and protocols to govern treatment and 

utilization of services, information systems to measure and 

monitor both the individual performance of the hospital and 

physicians and aggregate network performance, and procedures to 

modify hospital and physician behavior and assure adherence to 

network standards and protocols. The network is structured to 

achieve its efficiencies through a high degree of interdependence 

and cooperation among its participants. The price agreement for 

physician services, under these circumstances, is subordinate to 

and reasonably necessary to achieve these objectives.66 

66 Although the physicians have not directly agreed among 

themselves on the prices to be charged, their use of an agent 

subject to the control of the PHO to establish fees and to 

negotiate and execute contracts on behalf of the venture would 

amount to a price agreement among competitors. The use of such 

an agent, however, should reduce the risk of the PHO’s activities 

having anticompetitive spillover effects on competition among 

provider participants for non-network patients. 

131 
Furthermore, the Agencies would not challenge establishment 

and operation of the PHO under the rule of reason. In conducting 

the rule of reason analysis, the Agencies would evaluate the 

likely competitive effects of the venture in each relevant 

market. In this case, the PHO does not appear likely to limit 

competition in any relevant market either by hampering the 

ability of health plans to contract individually with area 

hospitals or physicians or with other network joint ventures, or 

by enabling the hospital or physicians to raise prices above 

competitive levels. The PHO does not appear to be overinclusive: 

many primary care physicians as well as specialists are available 

to other plans, and the doctors in the PHO have been included to 

achieve the network’s procompetitive potential. Many PHO doctors 

also participate in other managed care plans and are expected to 

continue to do so in the future. Moreover, several significant 

managed care plans are not dependent on the PHO doctors to offer 

their products to consumers. Finally, the venture is structured 

so that physician participants do not share competitively 

sensitive information, thus reducing the likelihood of 

anticompetitive spillover effects outside the network where the 

physicians still compete, and the venture avoids any 

anticompetitive collateral agreements. 

Since the venture is not likely to be anticompetitive, there 

is no need for further detailed evaluation of the venture’s 

potential for generating procompetitive efficiencies. For these 

reasons, the Agencies would not challenge the joint venture. 

132 
They would reexamine this conclusion, however, and do a more 

complete analysis of the procompetitive efficiencies if evidence 

of actual anticompetitive effects were to develop. 

2. PHO That Provides Services On A Per Case Basis 

Goodville is a large city with a number of hospitals. One of 

Goodville’s hospitals, together with its oncologists and other 

relevant health care providers, establishes a joint venture to 

contract with health plans and other payers of health care 

services to provide bone marrow transplants and related cancer 

care for certain types of cancers based on an all inclusive per 

case payment. Under these contracts, the venture will receive a 

single payment for all hospital, physician, and ancillary 

services rendered to covered patients requiring bone marrow 

transplants. The venture will be responsible for paying for and 

coordinating the various forms of care provided. At first, it 

will pay its providers using a fee schedule with a withhold to 

cover unanticipated losses on the case rate. Based on its 

operational experience, the venture intends to explore other 

payment methodologies that may most effectively provide the 

venture’s providers with financial incentives to allocate 

resources efficiently in their treatment of patients. 

Competitive Analysis 

The joint venture is a multiprovider network in which 

competitors share substantial financial risk, and the price 

agreement among members of the venture will be analyzed under the 

133 
rule of reason. The per case payment arrangement involves the 

sharing of substantial financial risk because the venture will 

receive a single, predetermined payment for a course of treatment 

that requires the substantial coordination of care by different 

types of providers and can vary significantly in cost and 

complexity from patient to patient. The venture will pay its 

provider participants in a way that gives them incentives to 

allocate resources efficiently, and that spreads among the 

participants the risk of loss and the possibility of gain on any 

particular case. The venture adds to the market another 

contracting option for health plans and other payers that is 

likely to result in cost savings because of its use of a per case 

payment method. Establishment of the case rate is an integral 

part of the risk sharing arrangement. 

3. PHO With All The Physicians In A Small, Rural County 

Frederick County has a population of 15,000, and a 50-bed 

hospital that offers primary and some secondary services. There 

are 12 physicians on the active medical staff of the hospital 

(six general and family practitioners, one internist, two 

pediatricians, one otolaryngologist, and two general surgeons) as 

well as a part-time pathologist, anesthesiologist, and 

radiologist. Outside of Frederick County, the nearest hospitals 

are in Big City, 25 miles away. Most Frederick County residents 

receive basic physician and hospital care in Frederick County, 

and are referred or transferred to the Big City physician 

specialists and hospitals for higher levels of care. 

134 
No managed care plans currently operate in Frederick County. 

Nor are there any large employers who selectively contract with 

Frederick County physicians. Increasingly, Frederick County 

residents who work for employers in Big City are covered under 

managed care contracts that direct Frederick County residents to 

hospitals and to numerous primary care and specialty physicians 

in Big City. Providers in Frederick County who are losing 

patients to hospitals and doctors in Big City want to contract 

with payers and employers so that they can retain these patients. 

However, the Frederick County hospital and doctors have been 

unsuccessful in their efforts to obtain contracts individually; 

too few potential enrollees are involved to justify payers’ 

undertaking the expense and effort of individually contracting 

with Frederick County providers and administering a utilization 

review and quality assurance program for a provider network in 

Frederick County. 

The hospital and all the physicians in Frederick County want 

to establish a PHO to contract with managed care plans and 

employers operating in Big City. Managed care plans have 

expressed interest in contracting with all Frederick County 

physicians under a single risk-sharing contract. The PHO also 

will offer its network to employers operating in Frederick 

County. 

The PHO will market the services of the hospital on a per 

diem basis, and physician services on the basis of a fee schedule 

that is significantly discounted from the doctors’ current 

135 
charges. The PHO will be eligible for a bonus of up to 20 

percent of the total payments made to it, depending on the PHO’s 

success in meeting utilization targets agreed to with the payers. 

An employee of the hospital will develop a fee schedule, 

negotiate fees, and contract with payers on behalf of the PHO. 

Information about what participating doctors charge non-PHO 

patients will not be disseminated to the doctors, and they will 

not agree on the prices they will charge patients not covered by 

PHO contracts. 

Physicians’ participation in the PHO is structured to be nonexclusive. Because no other managed care plans operate in the 

area, PHO physicians do not now participate in other plans and 

have not been approached by other plans. The PHO physicians have 

made clear their intention to continue to practice outside the 

PHO and to be available to contract individually with any other 

managed care plans that expand into Frederick County. 

Competitive Analysis 

The agreement of the physicians on the prices they will 

charge through the PHO would be analyzed under the rule of 

reason, because they share substantial financial risk through the 

use of a pricing arrangement that provides significant financial 

incentives for the physicians, as a group, to achieve specified 

cost-containment goals. The venture thus has the potential for 

creating significant efficiencies, and the setting of price 

promotes the venture’s use of the risk-sharing arrangement. 

136 
The Agencies would not challenge formation and operation of 

the PHO under the rule of reason. Under the rule of reason 

analysis, the Agencies would evaluate the likely competitive 

effects of the venture. The venture does not appear likely to 

limit competition in any relevant market. Managed care plans’ 

current practice of directing patients from Frederick County to 

Big City suggests that the physicians in the PHO face significant 

competition from providers and managed care plans that operate in 

Big City. Moreover, the absence of managed care contracting in 

Frederick County, either now or in the foreseeable future, 

indicates that the network is not likely to reduce any actual or 

likely competition for patients who do not travel to Big City for 

care. 

While the venture involves all of the doctors in Frederick 

County, this was necessary to respond to competition from Big 

City providers. It is not possible to verify at the outset that 

the venture will in fact be non-exclusive, but the physicians’ 

participation in the venture is structured to be non-exclusive, 

and the doctors have expressed a willingness to consider joining 

other managed care plans if they begin operating in the area. 

For these reasons, the Agencies would not challenge the joint 

venture. However, if it later became apparent that the 

physicians’ participation in the PHO was exclusive in fact, and 

consequently managed care plans or employers that wanted to 

contract with some or all of the physicians at competitive terms 

were unable to do so, or that the PHO doctors entered into 

137 
collateral agreements that restrained competition for services 

furnished outside the PHO, the Agencies likely would challenge 

the joint venture. 

4. PHO That Does Not Involve Horizontal Agreements On Price 

A hospital and doctors and other health care providers on its 

medical staff have established a PHO to market their services to 

payers, including employers with self-funded health benefits 

plans. The PHO contracts on a fee-for-service basis. The 

physicians and other health care providers who are participants 

in the PHO do not share substantial financial risk or otherwise 

integrate their services so as to provide significant 

efficiencies. The payers prefer to continue to use their 

existing third-party administrators for contract administration 

and utilization management, or to do it in-house. 

There is no agreement among the PHO’s participants to deal 

only through the PHO, and many of them participate in other 

networks and HMOs on a variety of terms. Some payers have chosen 

to contract with the hospital and some or all of the PHO 

physicians and other providers without going through the PHO, and 

a significant proportion of the PHO’s participants contract with 

payers in this manner. 

In an effort to avoid horizontal price agreements among 

competing participants in the PHO while facilitating the 

contracting process, the PHO considers using the following 

mechanisms: 

138 
A. An agent of the PHO, not otherwise affiliated with any 

PHO participant, will obtain from each participant a fee schedule 

or conversion factor that represents the minimum payment that 

participant will accept from a payer. The agent is authorized to 

contract on the participants’ behalf with payers offering prices 

at this level or better. The agent does not negotiate pricing 

terms with the payer and does not share pricing information among 

competing participants. Price offers that do not meet the 

authorized fee are conveyed to the individual participant. 

B. The same as option A, with the added feature that the 

agent is authorized, for a specified time, to bind the 

participant to any contract offers with prices equal, to or 

better than, those in a contract that the participant has already 

approved. 

C. The same as option A, except that in order to assist 

payers in developing contract offers, the agent takes the fee 

authorizations of the various participants and develops a 

schedule that can be presented to a payer showing the percentages 

of participants in the network who have authorized contracts at 

various price levels. 

D. The venture hires an agent to negotiate prices with 

payers on behalf of the PHO’s participants. The agent does not 

disclose to the payer the prices the participants are willing to 

accept, as in option C, but attempts to obtain the best possible 

prices for all the participants. The resulting contract offer 

then is relayed to each participant for acceptance or rejection. 

139 
Competitive Analysis 

In the circumstances described in options A through D, the 

Agencies would determine whether there was a horizontal agreement 

on price or any other competitively significant terms among PHO 

participants. The Agencies would determine whether such 

agreements were subject to the per se rule or the rule of reason, 

and evaluate them accordingly. 

The existence of an agreement is a factual question. The 

PHO’s use of options A through C does not establish the existence 

of a horizontal price agreement. Nor is there sharing of price 

information or other evidence of explicit or implicit agreements 

among network participants on price. The agent does not inform 

PHO participants about others’ acceptance or rejection of 

contract offers; there is no agreement or understanding that PHO 

participants will only contract through the PHO; and participants 

deal outside the network on competitive terms. 

The PHO’s use of option D amounts to a per se unlawful price 

agreement. The participants’ joint negotiation through a common 

agent confronts the payer with the combined bargaining power of 

the PHO participants, even though they ultimately have to agree 

individually to the contract negotiated on their behalf. 

*** 

140 
Persons who are considering forming multiprovider networks 

and are unsure of the legality of their conduct under the 

antitrust laws can take advantage of the Department of Justice's 

expedited business review procedure for joint ventures and 

information exchange programs announced on December 1, 1992 (58 

Fed. Reg. 6132 (1993)) or the Federal Trade Commission's advisory 

opinion procedure contained at 16 C.F.R. §§ 1.1-1.4 (1993). The 

Agencies will respond to a business review or advisory opinion 

request on behalf of parties considering the formation of a 

multiprovider network within 120 days after all necessary 

information is submitted. The Department's December 1, 1992 

announcement contains guidance as to information that should be 

submitted. 

141 
You may contact the Antitrust Division regarding business 

review letters: 

By writing or calling: 

Legal Procedure Unit

Antitrust Division 

U.S. Department of Justice

Suite 215, 325 7th St., NW 

Washington, D.C. 20530 

(202) 514-2481 

You may access public documents by using the Internet: 

gopher@justice.usdoj.gov

http://www.usdoj.gov 

You may contact the Federal Trade Commission regarding 

advisory opinions: 

By writing or calling: 

Health Care Division 

Bureau of Competition

Federal Trade Commission 

Washington, D.C. 20580

(202) 326-2756 

You may access public documents by using the Internet: 

http://www.ftc.gov