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Numonia Medical Network, Inc. ("Numonia")
seeks an advisory opinion concerning its proposal to
establish and operate a physician network in the Welltown,
Numonia, area. Please be prepare to discuss your
analysis and recommendations at the scheduled meeting.
Base your decision on the following information
which has been communicated to the FTC in the attached
letter:
Mr. Robert F. Leibenluft
Assistant Director
Health Care Division
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Dear Mr. Leibenluft:
We represent several physicians who are forming a
non-profit network. Numonia Medical
Network, Inc. ("Numonia") will establish and
operate a physician network in the Welltown, Numonia area . We seek an advisory opinion on whether formation
of such a network would violate federal anti-trust
laws.
Numonia will be a for-profit professional
corporation owned by physician shareholders, most of
whom also will be participants on Numonias provider
panel. Membership in Numonia is limited to licensed
Medical Doctors or Doctors of Osteopathy engaged in the
practice of medicine in a ten-county area (the
"Primary Service Area") of northwestern Numonia(1)
Numonia will be governed by a 15-member board of
directors, elected by the Class A shareholders. Ten of
the 15 board members must be primary care doctors,(2)
and 13 of the 15 must be Class A shareholders.
Shares of stock in Numonia were sold at $1,000 per
share; each shareholder holds one share. There are two
classes of shareholders: Class A common stock is
available to independent physicians, defined as those
who obtain the majority of their professional income
from self- employment or employment by a
physician-owned entity. Class B common stock is
available to non-independent physicians -- those who
are employed by hospitals or other nonprofessional
groups. According to the Bylaws, Class B shareholders
are not entitled to vote for members of the board of
directors, or on other matters except as required by
law.(3)
Numonias purposes are to preserve individual
providers practices by strategically aligning the
providers in a manner that enhances their ability to
obtain health care contracts, to establish a vehicle
for the providers to accept risk-sharing arrangements,
and to enhance efficiencies and maintain quality
assurance in the provision of comprehensive
multi-disciplinary health care.
Numonia has 218 shareholders, and has stopped
admitting new shareholders. It has not yet been
determined how many shareholders will sign
participation agreements and actually provide services
pursuant to Numonia contracts. All shareholders also
will be participating providers. In addition, Numonia may seek to enter into participation agreements with
non- shareholders in order to offer comprehensive
medical services. Those physicians would not
participate in Numonia on an equity basis, but would
participate, along with shareholders, in risk pools
established by Numonia.(4)
Numonia plans to enter into contracts with
third-party payers under which its participating
physicians will share substantial financial risk by
agreeing to provide all medically necessary services to
their enrollees for a percentage of the insurance
premiums collected by the payers.
Numonia will pay its primary care physicians on a
capitated basis for primary care services. Specialty
physicians will be paid by Numonia on a fee-for-service
basis, subject to a 15- 20% withhold to be placed into
a risk pool. On an annual basis, funds withheld in the
risk pool may be distributed to primary care physicians
and specialists upon their meeting or exceeding certain
utilization and quality levels.
In order to manage the financial risk that it will
assume under contracts with payers, Numonia intends to
implement medical management procedures including
utilization management, retrospective review,
development of standard practice parameters, and
sharing of professional expertise. All participating
providers will participate in ongoing utilization
management review, quality assurance programs, and
credentialing programs undertaken by Numonia. Numonia intends to employ a paid medical director and a
utilization review nurse. Thus far, Numonia has relied
on Penmed Member Services Company ("PMSCO"),
a for-profit arm of the Numonia Medical Society,
to assist it in developing the capabilities necessary
to accept risk contracts.
553 physicians actively practicing in Welltown County in
the specialties will be represented in the network, and
1188 such physicians practicing in the ten-county
Primary Service Area. Numonia has 218 shareholders, who
are approximately 40% of all the physicians in the
represented specialties in Welltown County, and
approximately 18% of such physicians in the Primary
Service Area.
The proportion of participation varies widely by
specialty. Numonia will assume the risk of providing
both primary and specialty physician services to those
patients who have designated a Numonia participating
physician as their primary care doctor. Numonia does
not intend to attempt to contract to be the sole
physician network of any health plan. Rather, Numonia envisions that payers will continue to contract with
other provider networks, or with physicians
individually, in order to provide services to patients
whose primary care physician is not a participant in Numonia.
Participation in Numonia is nonexclusive. Numonia states that it will not impose any restrictions on the
ability of network providers to provide medical
services independently or through other organizations,
including other physician networks. Many Numonia shareholders currently contract to provide services
through the two major third-party payers operating in
the Welltown area -- Highmark Blue Cross Blue Shield and
Alliance Health Network, an HMO owned by hospitals in Welltown
and the surrounding areas.
There are four significant general acute care
hospitals in Welltown County: Hamot Medical Center ("Hamot"),
Saint Vincent Heath Center ("Saint Vincent"),
Metro Health Center, and Millcreek Community Hospital.
Hamot and St. Vincent are large tertiary care
facilities, and offer a much broader array of services
than the other hospitals.(5)
Hamot employs 20 to 30 primary care physicians, and
Saint Vincent employs 98 providers, including
physicians and other practitioners, of whom 63 are in
primary care. The doctors employed by these two
hospitals account for about 12% of primary care doctors
in the primary service area and about 25% of primary
care doctors in Welltown County. Some physician practices
also are owned by the two smaller hospitals and by
Highmark. A planned merger between Hamot Medical Center
and Saint Vincent Health Center has been announced.
Numonia has adopted policies designed to ensure that
information relating to individual physicians fees or
other information used to construct fee schedules
relating to managed care contracts is not disseminated
to individual participating physicians, and to
discourage shareholders from using Numonia as a vehicle
for reaching anticompetitive agreements affecting
non-network business. Numonia has designated PMSCO as
its sole agent to collect and process pricing
information relating to physician services. Any data
provided to PMSCO must be at least 90 days old and will
not be revealed to individual members of Numonia. In
addition, Numonia prohibits discussions among
shareholders regarding the creation of exclusive
territories for the delivery of health care, joint
refusals to deal by participants with a person or
entity, or price- setting or pricing information except
in the course of Numonias negotiations with managed
care companies or physician subcontractors.
Primary Care Physician Services.
With respect to primary care physicians, Numonia includes as shareholders 41 family practitioners, 15
internists, and 6 pediatricians. These physicians
constitute 33% of the family practitioners in Welltown County (plus 1 of 8 in Venango County and 1 of 28 in
Crawford County); 28% of the internists in Welltown County
(plus 2 of 10 in Crawford County); and 35% of the
pediatricians in Welltown County.(6)
Even assuming that for these physicians the geographic
market is no broader than Welltown county, affiliation with
Numonia of this percentage of primary care physicians,
on a non-exclusive basis, does not appear likely to
present a significant risk of competitive harm.(7)
St. Vincent and Hamot employ a large number of primary
care physicians who are highly regarded in the
community and who have large patient loads.(8)
| Specialty |
In Welltown County |
In PSA |
| Anesthesiology |
29% |
11% |
| Pathology |
36% |
18% |
| Dermatology |
33% |
20% |
Emergency
Medicine |
0 |
3% |
| General Surgery |
31% |
14% |
| Neurosurgery |
22% |
9% |
| Ob-Gyn |
30% |
13% |
Orthopedic
Surgery |
28% |
11% |
| Plastic Surgery |
33% |
22% |
| Psychiatry |
11% |
4% |
| Radiology |
36% |
18% |
Specialty Physician Services.. Numonia
has as participating physicians the following
proportion of practicing physicians in Welltown County and
the Primary Service Area ("PSA"):
However, Numonias proposed panel has a higher
portion of physicians in other specialty areas. High
percentages of specialists and sub-specialists is
necessary for the success of the network. In some
specialty fields there are only a few physicians or a
few physician group practices, so that enrolling one
physician or one major group practice in a panel
inevitably gives Numonia a high percentage of the
available doctors in that specialty.(9)
It generally is not practicable to include fewer than
all members of a group practice on the panel for
reasons including cross-coverage responsibilities
In other specialty areas, Numonia proposes to
include a high percentage of specialists who are not
all members of one group practice. For example, Numonia
has as shareholders the following percentages of
physicians:
| Specialty |
In Welltown County |
In PSA |
Cardiovascular Disease(10)
19 doctors in 2 groups |
83% |
66% |
Cardiovascular/
Thoracic Surgery(11)
9 doctors in 2 groups |
69% |
69% |
Colon and Rectal Surgery
3 doctors in 2 groups |
100% |
100% |
Gastro-enterology
7 doctors in 3 groups |
100% |
50% |
Infectious Diseases(12)
4 doctors in 3 groups |
80% |
67% |
Nephrology
6 doctors in two groups |
86% |
43% |
Urology(13)
7 doctors in three groups |
55% |
40% |
The inclusion of a large number of physicians was
necessary for the network to offer coverage at both
Hamot and St. Vincent (and in some cases, at Metro
Health Center);((14)
and that coverage at all hospitals is necessary because
many patients have a strong preference for one or the
other of the hospitals, so that a network offering
access to only one hospital is not effectively
marketable. Because Numonia will provide all covered
services to patients who select a Numonia participant
as their primary care doctor, the network needs to be
able to provide specialty services at the hospital
selected by the patient or the primary care doctor.
The majority of the members of Numonias board of
directors must be primary care doctors (who also will
control the flow of patients to specialists) may place
some constraints on the ability of groups of
specialists to charge supra-competitive prices through
the venture. All Numonia providers will receive
compensation from a predetermined percentage of the
premium collected by contracting payers, the other
physicians should have strong incentives to pay those
specialists at competitive levels.
We look forward to the FTC opinion.
Sincerely,
1. (1) The
10-county Primary Service Area consists of Welltown County
and the surrounding counties of Cameron, Crawford, Elk,
Forest, McKean, Mercer, Potter, Venango and Warren. You
state this area was defined based on hospital
admissions data and referral patterns to the specialist
physicians who formed Numonia; that substantially all
of their referrals are from within the Primary Service
Area, and a substantial number of referrals were
received from each of the counties. However, almost all
Numonia shareholders have their primary offices within Welltown
County.
2. (2) Numonia considers family practitioners, general internal
medicine practitioners, and pediatricians to be primary
care physicians.
3. (3) However,
one director currently is a Class B shareholder (and
another may be appointed to fill a vacancy), and the
Board has committed that in the future, Class B
shareholders will be permitted to vote for any board
positions (not to exceed two) that are designated for
non- independent physicians.
4. (4) You have
not provided any specific information on the terms of
such contracts with non-shareholders or the doctors who
would be involved, and this letter expresses no opinion
on the possible implications of those contracts.
5. (5) According
to the 1997-98 AHA Guide to the Health Care Field,
St. Vincent has 477 beds, Hamot has 366 beds, Metro
Health Center has 112 beds, and Millcreek Community
Hospital has 101 beds.
6. (7) Numonia shareholders constitute 16% of the family
practitioners, 11% of the internists, and 19% of the
pediatricians in the 10-county Primary Service Area. In
addition, there are 21 general practitioners in Welltown
County, and 45 in the primary service area, who are not
Numonia members.
7. (9) As a
matter of convenience, we refer to as "employed
physicians" those physicians who are employed by,
those whose practices are owned and managed by, and
those with similar financial arrangements with, the
hospitals. We understand that all of these physicians
are Class B shareholders.
8. 21 physicians
employed by the hospitals (16 of them in primary care
fields) are shareholders in Numonia; Numonias intention
is to preserve control of the organization by the Class
A shareholders ("independent physicians"),
and that they must hold 13 of the 15 directors seats.
However, two of the board seats are effectively
designated for employed physicians
("non-independent" Class B shareholders), and
next year these doctors will be permitted to vote for
those directors. Numonias board of directors has
adopted policies requiring board members to disclose
conflicts of interest, and prohibiting use of
confidential information acquired from Numonia for the
advantage of any entity with which the director is
affiliated or employed.
9. Numonia shareholders include two allergists who are 67% of that
specialty in Welltown County and 40% in the PSA; three
endocrinologists who are 60% of that specialty in Welltown
County and 42% in the PSA; and seven otolaryngologists
who are 78% of that specialty in Welltown County and 21% in
the PSA. In each case, the specialists are all members
of a single practice group. In addition, Numonia includes the only pain management specialist in
Welltown County or the PSA, and one geriatric specialist who
comprises 50% of the doctors in that specialty in Welltown
County and 25% percent of those in the PSA.
10. One of the doctors in this
specialty who practices in Welltown County and is not a
Numonia shareholder is associated in a group practice
with Numonia shareholders. The other non- Numonia cardiologists in
Welltown County and in the PSA do not
provide the same range of services, including invasive
procedures, that are provided by the Numonia shareholders. Some high level cardiology services for
patients within the PSA are performed by doctors in
Pittsburgh, Cleveland, and Buffalo.
11. The four
cardiovascular surgeons who are not Numonia shareholders are members of group practices with
surgeons who are Numonia shareholders. The four
vascular surgeons in Welltown County do not perform the
same range of surgery as the Numonia shareholders.
12. One of
these doctors is an administrator at one of the
hospitals and does not have a substantial practice.
13. One
urologist is located in Crawford County, where there is
one other urologist.
14. The
cardiology, cardiovascular surgery, and colon and
rectal surgery groups practice exclusively at St.
Vincent or at Hamot, while the infectious disease,
nephrology, and urology groups confine almost all of
their practices to one hospital or the other. Each of
the three gastroenterology groups practices
predominantly at Hamot, St. Vincent, or Metro Health
Center. Consequently, the participation of each of the
groups is necessary for Numonia effectively to offer
services at each of those hospitals. We note, however,
that under some circumstances the merger of Hamot and
St. Vincent, if it takes place, could reduce the need
for inclusion of practice groups having privileges at
both hospitals. |
