An Issue Paper Prepared by the National Rural Health Association-May 1996


"The major federal antitrust laws prohibit price fixing, boycotts and similar agreements among competitors that produce anti-competitive effects. They also prohibit mergers, acquisitions or joint ventures that would lessen competition or create monopolies. The antitrust laws are designed to preserve competition, not competitors. Consumer choice is increased by assuring that providers do not collude to restrict the range of prices and available services and by assuring that providers compete for patients by offering a range of desirable services at reasonable prices" (Group Health Association of America, 1994).



What balance, if any, do we need to achieve in health care between competition and collaboration? An advocate for pure competitive models might remind us that "good fences make good neighbors." But there is more to Robert Frost's poem Mending Wall, "I let my neighbor know beyond the hill, and on a day we meet to walk the line and set the wall between us once again...." Even this American icon to self-sufficiency is expressed within the cultural context of selective cooperation. Competition and cooperation are not mutually exclusive, both have deep roots in our culture (Size, 1995).

The formation of appropriate public policy on the question of applying antitrust laws to health care is particularly tough because on this topic many of us firmly hold contradictory values that lead us to develop contradictory goals. With health care, we want to avoid wasting scarce public resources (and we typically define duplicative services as wasteful), but we seek consumer choice and competitive markets that by definition require alternative, duplicative services. Such is the duality the issue of antitrust and health care forces us to address.

Antitrust laws have been around for 100 years, but they generally have not been seen as relevant to health care until recently. Given the unique economics and characteristics of the industry, any policy discussion about antitrust and rural health has to grapple with the question of applicability of traditional antitrust laws to health care overall. In addition, consideration needs to be given that rural health fits the competitive model even less well and is probably less appropriately a target for traditional antitrust enforcement (B.A. Wagner, personal communication, April 10, 1996).



On one hand, strong antitrust enforcement is likely to be seen as a benefit because rural providers and networks have become increasingly concerned about potential "predatory" practices of large health care and insurance systems. On the other hand, and probably more obvious, antitrust laws are seen as a possible limitation to the development of local rural health systems. Depending on which perspective one chooses, either a positive or negative "spin" can be put on rural network formation. The following are practical examples of this point.

From the perspective of a natural chronology of policy development, it is still early days. The competitive pressures in rural markets are still relatively new. On one hand, we may not yet have seen the most egregious attempts to colonize vulnerable rural markets; on the other hand, most rural providers have just begun to seriously address the need for greater collaboration to operate in increasingly competitive markets.

We Must Think Through the Solution for a Problem that is Only Now Beginning to be Experienced

The primary issue for rural advocates today is not so much whether we have had antitrust problems in the past, but how we can ensure antitrust protection for local care givers and communities in the future while at the same time we move more rapidly toward the greater use of collaborative models that unavoidably bring with them the need to address traditional antitrust restraints. Those who benefit from rural providers remaining fragmented and vulnerable to takeover are the first to attempt to deflect the discussion by claiming there has been little evidence of need. It is our job to describe and solve that need as it is now unfurling.

How should long-standing antitrust principles apply to rural communities? The dominant paradigm that health care is reinventing itself into mutually exclusive vertically integrated competing systems does not describe well much of rural health. Local networks of rural providers are organizing themselves horizontally so as to contract with multiple, vertically integrated competing systems. In other more remote rural areas, a non-competitive model based on a single system is seen by some as more appropriate. Does antitrust enforcement need to be modified to encourage competitive models in rural areas? Should antitrust enforcement be limited in areas where the success of competitive models is determined to be unlikely?



The U.S. Department of Justice and the Federal Trade Commission have issued "nine statements of their antitrust enforcement policies and analytical principles ('safety zones') relating to mergers and various joint activities in the health care area" (Department of Justice and Federal Trade Commission, 1994, pg. 1). A summary of their first eight principles, developed by the North Carolina Rural Health Research Program, is condensed below (North Carolina Rural Health Research Program, 1966, pg. 4).

  1. Mergers. Most mergers between two hospitals where one has fewer than 100 beds and a three-year average occupancy below 40 percent will fall within a safety zone.
  2. Joint Ventures Involving High Technology. Generally, no challenge if only the minimum number necessary to own or operate the equipment is included.
  3. Joint Ventures Involving Specialized Clinical Services. Agencies have never challenged an integrated joint venture providing a specialized or expensive service.
  4. Collective Provision of Non-fee-related Information. Supplying purchasers with outcome data or jointly developing practice parameters is generally acceptable.
  5. Fee-related Information. A third party must be responsible for managing the collection of information that will be given to purchasers. If information is shared among or available to competing providers, it must be more than three months old.
  6. Provider Participation in Exchanges of Price and Cost Information. Same as 5 above.
  7. Joint Purchasing Arrangements. Generally not challenged if purchases are less than 35 percent of total sales of products and services in the market and the cost of the products and services being purchased account for less than 20 percent of each purchaser's revenues.
  8. Physician Joint Ventures. Not generally challenged for a non-exclusive physician network comprising 30 percent or fewer of the physicians in each physician specialty who practice in a market where there is "substantial" financial risk for its participants.



The Department of Justice and Federal Trade Commission's ninth statement pointed out the existing ambiguities in applying these principles to health care systems and multi-provider networks.

"Because multi-provider networks are relatively new to the health care industry, the Agencies [Department of Commerce and Federal Trade Commission] do not yet have sufficient experience evaluating them to issue a formal statement of antitrust enforcement policy or to set out a safety zone. The Agencies recognize, however, that guidance on antitrust issues raised by multi-provider networks is of vital importance to the health care industry" (Department of Justice and Federal Trade Commission, 1994, pg. 67).

The Supreme Court declined to take up the bludgeon offered it by Blue Cross and Blue Shield of Wisconsin versus Marshfield Clinic, lending credence to Marshfield Clinic's often stated position that this was not a case primarily about antitrust, but an example of an insurer's attempt to use the law to coerce a business deal and provider compliance. However, speculation about the motivation of individual behaviors in this case should not deflect us from the ongoing need to fine-tune our understanding of what constitutes appropriate antitrust enforcement in rural health.

"The real suspense will come when enforcement officials try to reconcile apparent contradictions between federal antitrust guidelines and the Marshfield opinion written by federal appeals court Judge Richard Posner, which is no law. In overturning the original jury verdict against Marshfield, Posner offered a much less restrictive interpretation of the market power of physician networks than the policy currently enforced by antitrust officials" (American Medical Association, 1996a).

Several statements from Commissioner Christine A. Varney of the Federal Trade Commission have indicated at least a personal willingness to develop more flexible federal guidelines (it has been speculated that this flexibility may be driven by the threat of H.R. 2925 discussed later in this paper).

"In rural areas, for example, the number of providers is by nature limited. I would caution against any rule that would, across the board, make it impossible for rural area providers to engage in pro-competitive exclusive arrangements. I stress pro-competitive arrangements, because I also believe that consumers in rural areas should be able to expect the same pro-competitive benefits of the antitrust laws that we afford consumers everywhere. My sense is that much of the special nature of rural markets will be captured by efficiencies arguments and, consequently, that the best way to ensure that we are sensitive to rural concerns is by being sensitive to efficiency concerns" (Varney, 1995).

"I would like to see us attempt, if possible, to expand the safety zones offered for provider networks, as well as emphasize that the agency should take a 'sliding scale' approach to analysis of such cooperative arrangements among competitors" (BNA, 1996).

While the politics of these issues percolate, more rural networks are making use of their right to apply for a business advisory letter from the federal Department of Justice under current federal rules and interpretation. The Rural Wisconsin Health Cooperative and, it appears from the published list of favorable business advisory letters, others have found the Department of Justice trying to be helpful. Business advisory letters are being approved that facilitate rural providers entering into collective discussions with health maintenance organizations (HMOs) and other payers that stop just short of allowing discussion and negotiation about price among rural "competitors."



Congress is in the process of considering modifying the application of the antitrust laws to health care provider networks that provide health care services. It is thought that rural providers would be able to form more collaborative solutions to the challenges of serving rural communities if they can anticipate being judged under the "rule of reason" rather than being at risk for having their conduct judged illegal per se. (Per se violations relate to conduct such as competitors agreeing up front what they will charge a third party; this conduct has been traditionally codified as never justified as they are acts "so pernicious that they always will be condemned" [Office of the Attorney General, State of Washington, 1995, pg. 5]). Under such an approach, all such conduct would be judged on the basis of its reasonableness, taking into account all relevant factors affecting competition, including the effects on competition in properly defined markets.

"House Judiciary Chairman Henry Hyde (R-IL) and House Ways and Means Chairman Bill Archer (R-TX) have introduced the 'Antitrust Health Care Advancement Act of 1996' (H.R. 2925). This legislation would require that the conduct of a health care provider network, as defined in the legislation, be judged on the basis of its reasonableness ('rule of reason' treatment). This means that legitimate physician networks would not automatically be subject to the 'per se' illegal rule with its criminal penalties if the network meets the substantive criteria of the bill."

H.R. 2925 would not exempt provider networks, as defined in the legislation, from the antitrust laws. The bill merely applied the well-established rule of reason test to the conduct of legitimate provider networks, which means that networks that engage in anti-competitive conduct in any market would be in violation of the antitrust laws and could be prosecuted to the full extent of the law" (American Medical Association, 1996b).



"Immunity from antitrust laws can be created when, for public policy reasons, lawmakers or the courts determine that overwhelming benefit is created by the immunity granted" (Office of the Attorney General, State of Washington, 1995, pg. 11). One such type of immunity known as "state action immunity" is widely seen as a potential rural health policy alternative, or supplement, to antitrust enforcement. It is increasingly being used around the country. To date, at least 21 states have passed laws that intend to establish a process by which providers can apply for an immunization by the state of various collaborative arrangements, a process frequently referred to as obtaining a "Certificate of Public Advantage" (COPA) (Moscovice, 1996). These 21 states are: Colorado, Florida, Georgia, Idaho, Kansas, Maine, Minnesota, Montana, Nebraska, New York, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Vermont, Washington, Wisconsin and Wyoming.

The initial use of these laws has been limited given:

During the past year, announcements in the media seem to indicate a marked increase in the number and size of projects for which a COPA has been given. The following news items give some sense of the diverse use states are beginning to make of the state action immunity doctrine.

State COPA statutes are new and untested; what is most known about them comes from the application of state action immunity principles in other arenas. In Federal Trade Commission versus Tocor Title Insurance Company, the Supreme Court held that a "system of passive regulation did not constitute active supervision, because the mere potential for state supervision is not an adequate substitute for a decision by the state. Unfortunately, the court only decided what does not qualify as active supervision but failed to clearly say what does constitute sufficient active supervision" (Office of the Attorney General, State of Washington, 1995, pg. 14).

In addition to determining how to operationalize "active, substantive" state supervision, other questions states need to consider include the following.



These initiatives should explicitly address what is to be expected by rural providers and communities in terms of both antitrust protection and restrictions.



The NRHA desires three outcomes to the above noted positions:



American Medical Association. (April 15, 1996a). American Medical News, pg. 4.

American Medical Association. (February 26, 1996b). Physician Antitrust Relief (media release).

BNA. (April 4, 1996). BNA's Health Law Reporter, pg. 498.

Department of Justice and Federal Trade Commission. (1994). The Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust.

Group Health Association of America. (March 17, 1994). HMO Managers Letter.

Group Health Association of America. (April 10, 1995). HMO Managers Letter.

Modern Healthcare. (February 12, 1996a).

Modern Healthcare. (March 11, 1996b).

Moscovice, I. (January 30, 1996). State Action Immunity: What Have Other States Done? Presented at the policy forum of the Wisconsin Network for Health Policy Research and the Rural Wisconsin Health Cooperative.

North Carolina Rural Health Research Program. (1966). Rural Healthcare Providers and the Law: An Issue Brief. Chapel Hill, NC: Cecil G. Sheps Center for Health Services Research, University of North Carolina at Chapel Hill.

Office of the Attorney General, State of Washington. (December 15, 1995). The Role of Antitrust Immunity in the Washington State Health Care Market, Report to the Washington State Legislature. Washington State: Antitrust Division, Office of the Attorney General.

Size, T. (1995). Strategic alliances: Some lessons from experience. In A.D. Kaluzny, H.S. Zuckerman, and T.C. Ricketts (eds.), Partners for the Dance: Forming Strategic Alliances in Health Care (pg. 40). Ann Arbor, MI: Health Administration Press.

Varney, C.A. (May 2, 1995). New Directions at the FTC: Efficiency Justifications in Hospital Mergers and Vertical Integration Concerns. Presented at the Health Care Antitrust Forum in Chicago, IL.