Physician-Hospital Organization: PHO, Term Paper Example

Explain why this arrangement would be found “per se” illegal under the FTCs’ analysis.

This arrangement would be found “per se” illegal under the FTCs’ analysis because of the ‘Independent Practice,’ Collective Enforcement law. ‘The PHO served as a vehicle through which competing hospitals and physicians could bargain collectively with health plans to obtain higher fees for themselves’ (student notes). However, ‘the owner PHOs, member hospitals, and member physicians canceled contracts with payors and informed them that the PHO would be the sole entity through which they would enter into payor contracts. To contract with the PHO, payors allegedly have had to accept the fixed physician fee schedule and fixed discount of no more than 10 percent off hospital list prices’ (student notes).

The later development in this situation is highly suggestive of an authoritative arrangement that could be found “per se” illegal under the FTCs’ analysis. However, when the Law360, New York (February 14, 2012, 1:55 PM ET) –stating that ‘Independent health care providers such as doctors and pharmacists occasionally form independent practice associations (IPAs) to service patients is reviewed; it is found that when these IPAs attempts to collectively negotiate reimbursement rates with third-party payers this can lead to antitrust enforcement actions’ (Law360, New York, 2013, p.1). It would appear that in this case study there was a movement from collective toward an independent practice model association, which in itself has a penalty from federal trade commission (FTC) standards (Law360, New York, 2013, p.1).

FTC has projected based on former cases that courts have used either two methods in their analysis. First it depends on the restraint issue itself and the type of restraint incurred. The determination which has to be made is whether the agreement/decision ‘unreasonably restrained competition’ (FTC, 2013, p.1). This appears to be the situation in this case. Further, FTC cited that certain kinds of agreements among ‘competitors — such as naked price-fixing, bid-rigging, market or customer allocation, and certain types of boycotts — are condemned per se upon proof of the existence of an agreement’ (FTC, 2013, p.1)

For emphasis, ‘the owner PHOs, member hospitals, and member physicians cancelling contracts with payors and informed them that the PHO would be the sole entity through which they would enter into payor contracts. To contract with the PHO, payors allegedly have had to accept the fixed physician fee schedule and fixed discount of no more than 10 percent off hospital list prices’ (student notes).This is ‘considered unreasonably restraining trade’ ( FTC, 2013, p 1). It could be presumed Therefore, that the PHOs, member hospitals has attempted to restrain trade, which is illegal under the per se rule, the court could then pass a judgment without even taking into account the effects of the actions of the owner PHOs, member hospitals (FTC, 2013).

What kind of actions could be taken to restructure this arrangement to avoid a determination that it is per se illegal?

Antitrust law governs the long-term outcome of how cases such as the one depicted in the case study would be managed. FTC has realized a long time ago that ‘agreements among competitors can either be anticompetitive, procompetitive, or competitively neutral’ (FTC, 2013, p.1). As such, even though ‘Section 1 of the Sherman Act literally prohibits every contract, combination, or conspiracy. . . in restraint of trade; (2) the Supreme Court made a decision long ago that Section 1 prohibits only “unreasonable” restraints; (3) this reasonableness of a restraint depends solely on its actual or likely effect on competition (4) [t]he term ‘restraint of trade’ . . . refers not to a particular list of agreements, but to a particular economic consequence’ (FTC, 2013, p1) . Ultimately, the economic consequence will be considered in reconstructing the relationship among owner PHOs, member hospitals and payors (Madrigal, 2013). The extent to which all of the above factors put a restrain on competition deems it per se illegal or eligible for reconstruction (FTC 2013).

Discuss the alternate FTC analysis that is applied to such cases if they are suspect but not found to be per se illegal.

When FTC takes the matter to court referencing an alternative analysis in a few other cases there were attempts at providing evidence to balance whether the action really produced ‘significant long-term anticompetitive effects’ (FTC, 2013, p.1). Also, it has to be proven whether the firm consistently over a period of time practiced competition restrains (Davis, 1962).

References

Davis. C. (1962). The Transformation of the Federal Trade Commission, 1914–1929 The Mississippi Valley Historical Review, Vol. 49, No. 3. (Dec. 1962), pp. 437–455

Federal Trade Commission (2013). The Federal Trade Commission Current Enforcement Policies with emphasis on Actions against Association. Retrieved on August 21, 2013 ^st from http://www.ftc.gov/speeches/starek/dcbar97.shtm

Law360, New York ( 2013). Independent Practice,’ Collective Enforcement (2013). Retrieved on August 21, from http://www.rkmc.com/~/media/PDFs/Independent%20Practice%20Collective%20Enforcement.pd

Madrigal, A. (2013). The Philosopher Whose Fingerprints Are All Over the FTC’s New Approach to Privacy. The Atlantic Students notes (2013).Case Study. Uploaded