Preferred provider organizations: antitrust aspects and implications for the hospital industry

The hospital industry is currently undergoing a substantial transformation as a result of changes in third party reimbursement mechanisms and a tendency toward a more competitive economic environment. Hospital administrators will have to demonstrate substantial flexibility in considering and implementing innovative institutional arrangements to ensure survival in this time of austerity. The Preferred Provider Organization (PPO) is a recent development in the health care industry involving the selective contracting for health care services. This Article examines the role of section 1 of the Sherman Antitrust Act in scrutinizing the PPO for anticompetitive effects, considering the divergent requisites for competition in the health care sector. The Article also proposes a modified Rule of Reason for application to the PPO and other innovative cost containment arrangements in the industry and considers the implications of such flexible application of conventional antitrust principles for the future of the hospital industry.