FTC Health Care Division Issues Advisory Opinion Letter Approving PHO

    February 2013

    On February 13, 2013, the staff of the Health Care Division of the Federal Trade Commission issued an advisory opinion letter approving a physician-hospital organization (PHO) headquartered in Norman, Oklahoma. The letter signals a significant degree of receptivity on the part of the Commission to development of clinically integrated provider networks. The letter re-affirms prior guidance from the Commission staff, while providing a few important cautionary signals.

    Specifically, the Commission’s staff approved the following aspects of the PHO:

    • The sufficiency of the proposed clinical integration activity to avoid per se condemnation of the collective negotiation of fees;
    • The implementation of joint contracting despite the lack of track record in achievement of clinical efficiencies or the finalization of the PHO’s clinical integration plan; and
    • Joint negotiation despite the assumption that the PHO’s physicians could collectively exercise market power so long as payers retained the option of bypassing the PHO.

    At the same time, the staff limited the scope of the letter in some important ways:

    • The letter reserves the potential for a challenge if the PHO operates anticompetitively;
    • The staff notes that the PHO does not include more than a single hospital and does not purport to negotiate jointly for otherwise competing hospitals; and
    • The clinical integration of the PHO reflects the evolution of a preexisting PHO currently utilizing a “messenger model” for network contracting and thus does not consolidate any market or eliminate any competition in the area of “PHO services.”

    Each of these points is expanded upon in our publication.