The legal framework for effective competition

Largely because of its indifference to spiraling costs, the professional domination model is being replaced by a market model based on competition among managed care plans and integrated delivery systems. In general, the more fully integrated previously competing providers become--for instance, by assuming financial risk together--the less legal risk is present, because of a decreased possibility of improper conspiratorial or collective behavior. Nevertheless, provider joint ventures and integrated delivery systems face a complex interaction of practical challenges and various legal and regulatory risks. This chapter explores ways in which laws involving fraud and abuse, self-referral, private inurement, corporate practice of medicine, Medicare reimbursement policy, and antitrust enforcement affect typical integrated delivery systems. From a legal standpoint, it might seem logical that the laws regulating health care providers would support and promote integration. A permissive legal environment to foster development of an integrated service network model assumes its development in a delivery system in which networks are at financial risk for the services provided. However, many of the laws and regulations governing integrated provider development were established at a time when joint ventures and other alliances were organizing in a predominantly fee-for-service environment and were generating significant increases in health care costs without producing demonstrable efficiencies or quality enhancements. The results is a fundamental inconsistency in government policy. The demand for collaboration by purchasers and legislatures does not necessarily cause the vast body of health care regulators to revise their concerns that many of the very collaborative activities being encouraged trigger potentially illegal acts and relationships. In a market model, the application of federal and state antitrust laws is especially important. In 1993 and 1994, the Department of Justice and the Federal Trade Commission jointly issued "Statements of Antitrust Enforcement Policy" in a number of areas of provider uncertainty. For integrated delivery systems, the primary focus of antitrust analysis is "market power." Systems without market power (i.e., the ability to force a purchaser to do something that the purchaser would not do in a competitive market) cannot harm consumers and should be free from serious antitrust risk. Where a network may have market power, its activities may be limited only if demonstrable anticompetitive effects outweigh the benefits of the efficiencies claimed by the new arrangement. The chapter concludes that vigorous antitrust enforcement may be required to promote market competition among integrated networks of providers and the managed care plans they serve.