SESSION 1:
CONCEPTUAL ISSUES IN COLLABORATION

Introduction To Collaboration1

Robert A. Berenson, M.D.

Collaboration among competing health plans need not fundamentally challenge the current competition model in health care, which features vigorous price competition. Health care is not such a unique activity that it is necessary to abandon notions of competition. The question is, within a competitive environment, what are permissible and promising areas for collaboration among competing health plans?

Value purchasing, not just purchasing on the basis of price, is to some extent occurring—although purchasing currently focuses primarily on price and choice of provider. Employers, who are the main purchasers of health care, make purchasing decisions that reflect employees' desires for access to a particular physician rather than for objective or even subjective measures of quality.

Despite the best efforts of many groups to emphasize the importance of quality information including external accreditation groups, such as the National Committee for Quality Assurance (NCQA) and the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), and despite the emphasis placed on the reporting of quality performance measures, such as the NCQA's Health Employer Data and Information Set, it is hard to find organizational rewards for investing in quality.2 Those organizations that do invest in high-quality services either are looking toward the future when quality might become a basis for competition or investing as a public service based on their own corporate mission.

Currently, many health plans feel market pressure for a broad panel of providers. This breadth may be provided within the plan through a point-of-service

1  

This presentation was revised and published in: Berenson, R.A. Bringing Collaboration Into the Market Paradigm. Health Affairs November/December 17:128–137, 1998

2  

Lipson, D.J. and De Sa, J.M. Impact of Purchasing Strategies on Local Health Care Systems. Health Affairs. 15:62–76, 1996.



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--> SESSION 1: CONCEPTUAL ISSUES IN COLLABORATION Introduction To Collaboration1 Robert A. Berenson, M.D. Collaboration among competing health plans need not fundamentally challenge the current competition model in health care, which features vigorous price competition. Health care is not such a unique activity that it is necessary to abandon notions of competition. The question is, within a competitive environment, what are permissible and promising areas for collaboration among competing health plans? Value purchasing, not just purchasing on the basis of price, is to some extent occurring—although purchasing currently focuses primarily on price and choice of provider. Employers, who are the main purchasers of health care, make purchasing decisions that reflect employees' desires for access to a particular physician rather than for objective or even subjective measures of quality. Despite the best efforts of many groups to emphasize the importance of quality information including external accreditation groups, such as the National Committee for Quality Assurance (NCQA) and the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), and despite the emphasis placed on the reporting of quality performance measures, such as the NCQA's Health Employer Data and Information Set, it is hard to find organizational rewards for investing in quality.2 Those organizations that do invest in high-quality services either are looking toward the future when quality might become a basis for competition or investing as a public service based on their own corporate mission. Currently, many health plans feel market pressure for a broad panel of providers. This breadth may be provided within the plan through a point-of-service 1   This presentation was revised and published in: Berenson, R.A. Bringing Collaboration Into the Market Paradigm. Health Affairs November/December 17:128–137, 1998 2   Lipson, D.J. and De Sa, J.M. Impact of Purchasing Strategies on Local Health Care Systems. Health Affairs. 15:62–76, 1996.

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--> option or by contracting directly with many or most providers in a community. As a result of this inclusiveness, plans have less ability to select carefully from among the larger pool of physicians those who provide higher quality care in their particular fields. It also prevents plans from creating a small group of practitioners who could easily work together on mutually agreed upon goals. As pressure to increase the size of networks increases, the ability of each plan to affect practice decreases. For example, if a given health plan provides only 10 percent of a physician's business, no single plan has enough data, influence, or incentive to work with those physicians to improve quality. For one thing, they lose economies of scale. For example, obtaining data about the performance of 1,000 physicians for whom the health plan provides 10 percent of their patients is much more costly and less useful than obtaining data from 100 physicians for whom the plan provides 100 percent of their patients. In addition, when plans deal with physicians and hospitals that are also in most other plans, there is a "free-rider" concern. In such an open-panel model, any serious investment in improving quality in one plan also benefits all of the plan's competitors. For example, sending a primary care physician to a course on dermatology so that she is better able to identify and treat skin lesions benefits not only the patients in that plan but those of its competitors as well. In short, the market imperative for plans to engage most of the physicians in an area of nonexclusive relationships creates networks that are too large and too broad to address improvement efforts efficiently, even if plans are willing to accept the free-rider burden. One way out of this dilemma would be for physicians to organize themselves into manageable units, to assume financial risk, and to be accountable for the quality of the services that they provide. Collaboration is another strategy that plans might use to achieve economies of scale and avoid free-rider problems. Potential Areas for Collaboration Within the reasonable constraints of antitrust laws, how might plans collaborate on clinical initiatives that could lead to greater quality and efficiency? One possibility would be to carry out the objectives of the Health Care Quality Improvement Act of 1986. Currently, when plans identify possibly serious quality deficiencies in the care provided by contract physicians, they find that it is easier to terminate those physicians "without cause" than to follow the requirements of the Health Care Quality Improvement Act. These requirements include a due process hearing to identify grossly substandard care provided by the physician and the reporting of quality deficiencies to the National Practitioner Data Bank. Similarly, many physicians identified as providing substandard care would prefer being terminated without cause and foregoing due process to avoid being reported to the Data Bank. By not reporting a physician, the plan can protect its own patients and the integrity of its own operations, but that does not help the

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--> public at large, because the terminated physician is able to continue contracting with other plans. This represents an opportunity for sharing data about physician performance, however. By pooling data, each plan would have a more useful database with which to identify incompetence, to profile comparative performance, and to initiate quality improvement programs. Antitrust laws prevent competing plans from making joint decisions not to contract with a particular physician but should tolerate information sharing among plans. Another example of an opportunity for collaboration is joint educational efforts. The following is an example of the kind of poor quality that health plans might improve through collaboration. In a recent article, Hartert et al3 reported on a study of in-hospital admissions for patients with asthma. The average number of admissions per patient was 2.5 per year, meaning that these patients had moderate to severe asthma. This study showed that fewer than half of the patients studied had been prescribed inhalation steroid therapy, which has become the mainstay of asthma treatment. Of those patients who were told by a health care professional to use a metered-dose inhalant, only 11 percent could actually use the inhaler correctly. Only 28 percent of patients had been given by their physicians an action plan to follow in the event of an acute asthma attack. Here, the challenges are to educate physicians and their staffs about modern asthma therapy and to help them educate and wain their asthmatic patients about self-management. A major educational program might be too expensive for any individual plan to undertake alone. Similarly, a practice guideline might well be ignored by physicians practicing in multiple plans. In addition, identifying preventable hospitalizations for asthma to target educational efforts is difficult because of the lack of statistical power that any plan would face if it relied only on its own data. By acting jointly, the plans could all contribute to education, perhaps through jointly issued and prominently disseminated practice guidelines. By pooling data, plans could also identify patterns of hospital admissions associated with particular physicians or other providers. Another clinical example in which collaboration might be beneficial is that of thrombolytic therapy. A vigorous policy debate among physicians, ethicists, and policy analysts has centered on the use of streptokinase as the preferred thrombolytic agent or whether the much higher cost of tPA is justified by its marginal benefit. (In meta-analyses, the benefit in terms of decreased mortality seems to be on the order of 1 per 1,000 patients.) Yet many patients do not get thrombolytic therapy at all, and the benefits of any thrombolytic therapy, whether it is streptokinase or tPA, are on the order of a 25 to 50 percent reduction in mortality. That is where mortality might be re- 3   Hartert TV, Windom HH, Peebles RS Jr., et al. Inadequate Outpatient Medical Therapy for Patients with Asthma Admitted to Two Urban Hospitals. American Journal of Medicine 100:381–382, 1996.

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--> duced and where attention should be focused.4 Plans might collaborate, for example, to establish a guideline regarding the use of streptokinase. In exchange for cost savings in drug use, they could then jointly fund public education programs targeted to patients at high risk of a heart attack. Collaboration might serve a useful public health function, if such programs emphasize the need for patients to go to an emergency room quickly if they are having chest pain or other worrisome symptoms. At the very least, medical directors of competing plans could together work with hospitals to improve emergency room performance in initiating thrombolytic therapy. Issues for the Conference Although one can make a plausible case for this type of collaboration, there are major barriers. One is the perceived threat of antitrust scrutiny, though the perception is likely to be worse than the reality. Nevertheless, we need to provide better guidance about what forms of collaboration concerning quality the antitrust laws clearly permit, what activities represent per se violations, and where there is uncertainty. More fundamentally, we need to understand what would induce determined competitors to collaborate, even on quality improvement. Here, the purchasers would be an important stimulus to bringing competing plans to the table to encourage specific quality improvement initiatives that they would not likely undertake on their own. We would also like to know what market characteristics might be important in determining the likelihood of collaboration. Perhaps there are important lessons—from both successes and failures—to be learned from other industries. Finally, what do we know about past successes and failures in health care delivery in the area of collaboration? The IOM conference was convened to begin a discussion of these issues. Legal Issues In Collaboration Clark C. Havighurst, J.D. Time was when health care was generally viewed as a collaborative enterprise and private interests, always professing primary concern for the quality of care, routinely cooperated to define and enforce the standards that governed it. Broad-based private organizations, mostly controlled by organized medicine, 4   Dracup K, Alonzo AA, Atkins JM, et al. The Physician's Role in Minimizing Prehospital Delay in Patients at High Risk for Acute Myocardial Infarcation: Recommendations from the National Heart Attack Alert Program. Annals of Internal Medicine 126:645–651, 1997.

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--> routinely prescribed ethical canons to guide the behavior of professionals, set educational and training standards for health care personnel, and established and applied accrediting standards for institutional providers. Not only did professional groups set standards and certify compliance with them, but they were also in a position, as an ostensibly benign monopoly, to enforce their standards and ethical values by collective action of a coercive nature. With boycotts and similar sanctions available to deter any actor who might be tempted to take a disapproved initiative, health care in the United States was very much a regulated industry. The power to prescribe rules and coerce adherence to them was exercised, however, not by public officials accountable in some measure to the electorate but by the industry itself, through interlocking, cooperating organizations representing mostly the interests of physicians. Under the paradigm of medical care that prevailed in public policy until the mid-1970s (and that still lingers in many minds today), professional self-regulation and centralized control of industry developments by ostensibly well-meaning professional interests were deemed to serve the public better than any government-controlled or market-driven system. The role of government was limited largely to enacting rules that reflected the dominant paradigm and reinforced the mechanisms of professional self-regulation. In recent years, of course, the health care industry has changed dramatically. Indeed, since the late 1970s, health care providers have been viewed increasingly as economic competitors, and collaboration among them has been subject to scrutiny under federal and state antitrust laws. The most important effect of introducing antitrust constraints on collective action in the health care field was to deprive professional interests of the power to impose direct, coercive sanctions to discourage developments that they did not like. As the medical profession lost control of its economic environment, crucial decisions affecting the quality and cost of health care were increasingly taken in response to the concerns not of professional interests but of consumers and their agents, including cost-conscious employers purchasing health coverage or health services for their employees. Particularly in the 1990s, purchasers' demands for cost control, the emergence of selective contracting and price competition, and the spread of managed care techniques for countering the effects of moral hazard have put severe pressure on such previously inviolate elements of American health care as physician autonomy and the doctor-patient relationship. For better or for worse, outright entrepreneurship, unconstrained by enforced respect for professional or other norms or by any need to cooperate with organized professional interests or community overseers, has come to American health care. It is arguable that active enforcement of the antitrust laws against health professionals is the most important public policy event that the health care industry has ever seen, because it brought health care out from under the old professional paradigm and exposed the industry to scrutiny under the market paradigm that governs most other economic activity in the United States.

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--> In many respects, these developments have clearly been for the better. In particular, significant amelioration in the rate of health care cost increases can be attributed to the market forces and innovations that were unleashed by antitrust enforcement. But these developments are increasingly perceived as having a potential downside. Thus, as pressures to control costs have increased in an environment with weakened behavioral norms and reduced self-regulatory oversight, there has arisen at least a perception that the quality of care is in unprecedented jeopardy. To be sure, it is hard to document the claim that managed care organizations are sacrificing truly valuable increments of quality or are performing any worse than the fee-for-service system performed under professional stewardship.5 Nevertheless, it is altogether natural for people to be concerned that the cost of health care, because it is both very high and more easily measured than uncertain marginal benefits, is getting more attention than the other side of the quality-cost trade-off. Although quality and cost do not always move in the same direction (improved quality often leads to lower, not higher, costs), the inability of consumers and others to recognize and assess technical quality in medical care may well create opportunities for inappropriate economizing. Without good accountability when quality slips,6 opportunistic payers and ethically challenged at-risk providers may be in a position to sacrifice increments of quality that, if all were known and choices were well presented, consumers would choose to pay for. Because of the large transaction costs associated with enforcing the implied contractual obligation to provide at least an efficient level of quality, inappropriate compromises of quality are at least a worrisome possibility. The object of the conference summarized here was to encourage new kinds of cooperation and collaboration that can foster improved quality of care in local markets within the context of the new paradigm of medical care. The principal purpose of this paper is to show that the market paradigm, as embodied in the anti-trust laws, would welcome, not oppose, many forms of collaboration by competing health plans that have the potential for improving the quality of care. To be sure, antitrust law prohibits naked agreements by competitors on the nature and quality of the services that they plan to sell as well as the use of coercive measures to enforce a particular standard or definition of quality. Nevertheless, the law should pose no obstacle to cooperation for the purpose of producing new information for the use of market participants or to collaboration that improves the market's functioning in some other way. The federal antitrust statutes have also been construed so that they do not apply to collective efforts to influence governmental action. As a result, there is significant room for private collaboration that alms at getting state 5   See Miller RH and Luff HS. Does Managed Care Lead to Better or Worse Quality of Care? Health Affairs 16:7, 1997. 6   Cf. Havighurst CC. Making Health Plans Accountable for the Quality of Care. Georgia Law Review 31:587, 1997 (arguing for so-called enterprise liability to ensure that health plans are accountable for the quality as well as the cost of health care provided under their auspices).

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--> and local governments to act in a manner that improves the quality of health care, even though the methods that governments adopt might be deemed anticompetitive and illegal if employed by private interests. Unfortunately, many legal questions raised by particular collaborative activities cannot be answered definitively in a summary like this one. Moreover, much will depend on the specific factual situation and the evidence that might turn up in a given case—for example, the proverbial ''smoking gun" or "hot document." Finally, even if the collaborators have obtained excellent legal advice on the substantive requirements of antitrust law, even scrupulous following of such advice would provide no guarantee that a costly-to-defend antitrust suit would not be filed by some competitor who is adversely affected by lawful collaborative action. In general, however, it is reasonable to expect quick dismissal of invalid claims in nearly all cases, and the law is clear enough that market participants should not be deterred by antitrust fears from collaborating to improve the quality of care in ways that do not interfere with the freedom of buyers and sellers ultimately to decide for themselves how and with whom to do business. Although private groups should not substitute their judgments for those of the marketplace, there are many things they could do to improve the chances that the interactions of independent buyers and sellers in a competitive market will reflect and give effect to consumers' true preferences with respect to the quality as well as the cost of care. Some Rudiments of Antitrust Law Most of the antitrust issues raised by collaboration to improve the quality of health care would arise under section I of the Sherman Act, which prohibits "every contract, combination..., or conspiracy in restraint of trade...."7 The first element of a violation—concerted action by multiple actors—is easily satisfied when independent professionals or other independent entities (such as competing health plans) cooperate for any purpose. The principal question in applying the statute is therefore whether there is in fact a "restraint of trade." Thus, the concerted conduct in question must be scrutinized to determine whether it is compatible with the maintenance of competition as a guarantor of consumer welfare. For these purposes, competition should be thought of as a dynamic process featuring voluntary transactions between and independent decisions by mutually accountable buyers and sellers. If a collaboration does not impair this process, it should not offend the antitrust laws. Certain kinds of horizontal agreements among competitors are conclusively presumed to have the prohibited effect on competition and are thus treated as illegal "per se." Thus, conduct that can be labeled "price fixing," "market allocation," or a "group boycott" will, if proved, be condemned without any further demonstration of the harm to competition, and the defendants will not be permit- 7   15 U.S.C. §1 (1994).

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--> ted to show that their purposes were worthy or that they lacked the market power needed to harm consumers. Conduct outside the reach of "per se rules," on the other hand, will be analyzed more fully under the so-called Rule of Reason. In such cases, there must be inquiry—sometimes it can be done quickly and easily—into the conduct's actual or probable effects on competition, which may be evidenced by the parties' professed or apparent purposes and the market power they seem capable of exercising. It is necessary to underscore that any assessment of concerted action under the Sherman Act and the Rule of Reason is concerned only with its effect on the competitive process. It is therefore irrelevant for antitrust analysis that a particular collaboration may enhance consumer welfare in some way other than by enhancing competition itself or that it has arguable virtues of another kind when viewed from the standpoint of general public policy. Standing alone, therefore, claims that concerted action will enhance the quality of health care should carry little weight, as such, in an antitrust court. This judicial response results because Congress is deemed to have created in the Sherman Act a conclusive presumption that consumers will benefit from maintaining competition and its attendant incentives, checks, and balances. Because the competitive process is generally presumed to be capable of addressing quality issues while also taking into account costs and other features of the overall transaction, any collective actions that competitors take to enhance the quality of goods and services must be designed to make that process work better, not to interfere with it. A former head of the Antitrust Division of the U.S. Department of Justice has argued that quality concerns in the health care field do not require special antitrust rules but can be adequately accommodated in traditional analysis focusing on competitive effects.8 One Supreme Court decision in particular illustrates the paramountcy of competition as the touchstone of antitrust analysis and the unavailability of defenses based solely on the quality of professional services. In that case, members of the National Society of Professional Engineers agreed to an ethical code under which they refrained from competitive bidding for engineering jobs.9 In court, they offered to defend their practice under the Sherman Act by showing that price competition would encourage corner-cutting in engineering work and imperil public safety. The Supreme Court, however, refused to allow the engineers 8   Kauper TE. The Role of Quality of Health Care Considerations in Antitrust Analysis. Law & Contemporary Problems 51(Spring):273, 340, 1988: "Conduct that promotes efficiency, ameliorates the effects of market failures or imperfections, or increases quality rivalry among providers is, to this extent, pro-competitive and may improve quality of care by enhancing the competitive process. Any further accommodation of quality-of-care concerns is a direct challenge to the central role of the market in the determination of quality, and therefore to the relevance of antitrust itself." See also Greaney, Quality of Care and Market Failure Defenses in Antitrust Health Care Litigation. Connecticut Law Review 21:605, 1989. 9   National Society of Professional Engineers v. United States, 435 U.S. 679, (1978).

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--> even to present evidence in support of their premise that competition, if allowed to operate, would serve the public badly.10 In so doing, the Court cited a famous case (decided 100 years ago) in which then Judge William Howard Taft opined that to permit true restraints of trade to be upheld under public policy defenses would be "to set sail on a sea of doubt" and to rely upon "the vague and varying opinion of judges as to how much, on principles of political economy, men ought to be allowed to restrain competition.11 To be sure, it is not always easy for courts to adhere to Judge Taft's advice to avoid balancing competition against other values in antitrust cases. Indeed, for some reason, the courts have never treated as per se offenses all so-called naked restraints of trade—that is, all agreements whose purpose, possibly benign in itself, is achievable only by reducing the vigor of competition in an economic market.12 On the other hand, neither have they indicated with any clarity what might save an agreement that, while falling outside the per se categories, still contemplates some attenuation of competition. Perhaps the most logical possibility is that courts might regard a naked restraint favorably if the particular market had major imperfections and the collaborators' action was likely to produce results closer to those that competition would normally be counted upon to yield. In other words, despite the presumption favoring competition for better or for worse, there may be room for a "market failure" defense under which the law would tolerate some attenuation of rivalry when rivalry can be shown not to serve the public well.13 10   See note 8, section 695 (stating that the society's attempt to justify its restraint on price competition "on the basis of the potential threat that competition poses to the public safety and the ethics of its profession is nothing less than a frontal assault on the basic policy of the Sherman Act"). 11   United States v. Addyston Pipe & Steel Co., 85 F. 271,283–284 (6th Cir. 1898). See also United States v. Socony Vacuum Oil Co., 310 U.S. 150 (1940) (condemning virtually all agreements aimed at affecting prices, "the central nervous system of the economy"); United States v. Trenton Potteries, 273 U.S. 392 (1927) (condemning price fixing as a per se restraint without regard to the reasonableness of the prices fixed). 12   Judge Taft's Addyston Pipe opinion first identified the distinction between naked and so-called ancillary restraints. Although a restraint of the latter kind affects competition between the parties to it, it does so only in aid of a larger procompetitive purpose and is therefore not premised on an ability or purpose to subvert competition in the market as a whole. Unfortunately for the clarity of antitrust analysis, courts and antitrust agencies do not routinely employ this distinction and often treat ancillary restraints to which one of the per se labels applies as unlawful unless they survive just the kind of balancing test that Judge Taft advised against. See, for example, Havighurst CC. Are the Antitrust Agencies Overregulating Physician Networks? Loyola Consumer Law Reporter 8:78 (protesting against use of per se labels to condemn conduct—joint marketing efforts by subsets of physicians in a markets—that is not anticompetitive under all circumstances). 13   See generally 7 Areeda PE, Antitrust Law: An Analysis of Antitrust Principles and Their Application. New York: Aspen Law and Business Press. ¶1504, 382–383, 1978

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--> Obviously, if a defense of this kind is available at all, it would have the greatest appeal in markets for professional services, where information problems loom especially large and where the collaborators may be able to claim that, as ethical professionals or concerned health plans, they are looking out for their clients' interests rather than their own.14 Interestingly, the Professional Engineers case itself can be read to support a modest market-failure defense. In that case, the Supreme Court stated, as a reason why the engineers' ethical canon against competitive bidding could not be upheld, that the restraint applied "with equal force to both complicated and simple projects and to both inexperienced and sophisticated customers."15 This language certainly implies that a ban that applied only to "complicated" projects and affected only ''inexperienced" consumers might stand on a different legal footing. Although it still remains hard in theory and under the language of the statute to justify letting private interests make rules that govern competitive practices, it may be desirable as a matter of practical politics for antitrust law and enforcement agencies not to seem too mindlessly or ideologically committed to the proposition that the "free market" always serves consumers well or to the view that professional groups can never be trusted to act in the public interest.16 In any event, even though a persuasive case might be made for permitting occasional market-correcting restraints of trade, it would be unwise for competitors designing collective action in local markets to rely on this arguable legal nuance and to count on being able to defend anticompetitive actions by pointing simply to good intentions, some alleged market failure, or arguable improvements in the quality of health care. Even if a particular market were seriously imperfect (because consumers lacked good information on quality, for example), antitrust law still provides no clear and reliable warrant for competitor groups to substitute their own judgments for those of the market. Although it is unlikely that public antitrust enforcers would challenge actions that seemed to have only     (discussing possible market-failure rationale for upholding an otherwise naked restraint that "arguably moves market performance closer to the competitive result"). 14   See generally Clark C. Havighurst, Health Care Law and Policy: Readings, Notes, and Questions. Westbury, N.Y.: Foundation Press, 325-339, 1988 (examining antitrust status of canons of professional ethics, which, even if viewed as naked agreements limiting the forms that competition may take, for example, deceptive advertising, would be good candidates for sympathetic treatment under a market-failure defense). 15   435 U.S. at 692. 16   See generally Havighurst CC. Antitrust Issues in the Joint Purchasing of Health Care. Utah Law Review 409:446, 1995. ("Indeed, if the law seemed too hidebound in this regard, demands by industry groups for legislative exemptions from or exceptions to antitrust requirements would gain plausibility, with a probable ultimate net loss of competition in the economy as a whole.") Keeping some kind of market-failure defense available in antitrust doctrine would not mean that agencies or courts would often be persuaded that competitors, with a clear conflict of interests are trustworthy guardians of consumer welfare.

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--> benign effects, local providers and others who were injured by the restraint in question could be counted on to raise the issue. Even if expert witnesses were available to show that competition serves consumers badly in the market in question and that concerted action interfering with it would serve consumers better (however it affected the plaintiff), there would still be a good chance that a court would rely upon the statutory presumption favoring untrammeled competition. The best justification for rejecting such defenses remains the one recognized by Judge Taft: the inappropriateness of letting private interests and enforcement agencies or courts, rather than the appropriate legislative body, decide as a policy matter whether competition should be displaced in one part of the economy. Although antitrust law takes a dim view of concerted action that is antithetical to competition, it is clearly not intended to discourage all competitor collaboration, much of which is clearly procompetitive. For example, antitrust law would not stand in the way if a subset of market participants lacking market power combined their efforts through a synergistic, efficiency-enhancing merger or joint venture. Although such a collaboration would eliminate competition among the participants themselves, that restraint would clearly be ancillary to their larger competitive initiative and should therefore be condemned only if they possess undue market power and if the anti competitive effects of their combination would outweigh efficiencies they could not otherwise obtain. Similarly, no antitrust objection would be raised if a group of competitors takes collective action that makes competition itself more efficient, such as the formation of an auction market (with ancillary rules limiting some forms of competitive endeavor) or the creation, collection, or dissemination of information beneficial to market participants. In general, antitrust authorities and courts in antitrust cases are charged with deciding whether a particular collaboration enhances efficiency without unduly reducing the vigor of competition in the overall market. Only if the likely anti competitive effects outweigh the procompetitive ones will a particular collaboration be deemed a restraint of trade. Specific Pitfalls to Be Avoided Before considering the specific kinds of local collaboration that might improve the quality of health care without incurring antitrust penalties, it may be helpful to identify certain kinds of concerted action that collaborators should definitely avoid. Most obviously, health plans and others cooperating to advance quality-of-care objectives in local markets must be careful to avoid conduct that falls under any of the so-called per se rules. Thus, in addition to avoiding agreements related to prices, they must not divide markets by agreeing not to compete in providing particular services, in serving particular customers, or in purchasing from particular suppliers. (Later discussion will address the possibility that government or some quasi-public planning apparatus might immunize agreements of

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--> tioned distinction—between setting standards and agreeing to enforce them by explicit boycotts or to be bound by them in their own competitive endeavors—should prevent problems from arising, especially if the parties could demonstrate affirmatively that they preserved and occasionally exercised their competitive independence. Once again, the possibility that parallel action will be interpreted as collusion must be taken into account. On the other hand, if the health plans were accused only of agreeing to limit coverage, no obvious plaintiff who claims an injury to his or her "business or property" would be likely to appear.29 Thus, serious financial repercussions are unlikely even if a violation were established (say, in the unlikely event that an action was initiated by public prosecutors).30 Information Collection and Exchange Quality assurance programs that focus on collecting and disseminating data should create no serious antitrust problems as long as they are voluntary and operate within the market paradigm rather than outside of it. Indeed, the virtue of information strategies from an antitrust point of view is that they not only leave each actor free to make its own decisions but also improve the quality of those decisions, thus producing better market outcomes. Concerns would arise, however, if the data exchange were designed to trigger uniform, noncompetitive responses, serving as a signal for concerted action. Thus, trade associations that provide data on costs and prices have been found guilty of circulating information that facilitates the making of uniform pricing decisions rather than simply making members more aware of market conditions. If quality-related information were circulated to trigger a boycott of certain providers, a similar problem could arise.31 On the other hand, uniform responses to objective information do not in themselves constitute a boycott. 29   An agreement among health plans to cover only streptokinase rather than the more costly tPA would injure no local provider. Conceivably, a supplier of tPA might bring suit, however, seeking treble damages for the profit on lost sales. 30   In theory, although one might imagine a claim for ordinary (nontreble) damages for personal injuries resulting from a violation of the Sherman Act, no successful claim of this kind has ever been reported. 31   If there is no overt concerted refusal to deal, it is necessary to ask whether an unlawful conspiracy to boycott can fairly be inferred from the evidence of knowingly similar conduct by the competitors (so-called conscious, parallelism) coupled with other suspicious circumstances. In a 1914 case in which some retail lumber dealers' associations published a list of wholesalers who also traded at retail in competition with the associations' members, the Supreme Court said, "When, in this case, by concerted action the names of wholesalers who were reported as having made sales to consumers were periodically reported to the other members of the associations, the conspiracy to accomplish that which was the natural consequence of such action [i.e., refusals to deal] may be readily inferred." Eastern States Retail Lumber Dealers' Ass'n v. United States, 234 U.S.

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--> As noted above, however, a boycott or other conspiracy can be proved without direct evidence of an actual agreement in restraint of trade, and plaintiffs who find themselves cut off or otherwise adversely affected by the collaborators' unanimous actions could be expected to claim that their injuries resulted from at least a tacit conspiracy to act in parallel fashion and not independently.32 Thus, when collaborators circulate information unfavorable to a provider and the all collaborators thereafter cease to deal with that provider, a question of fact arises as to whether they acted in concert not only in circulating the information but also in deciding what action to take on the basis of it. If the information is such that independent decisionmakers would all be likely to respond to it in the same way, then no inference of conspiracy could be drawn. On the other hand, if each competitor's reaction makes sense (in terms of self-interest) only if others react in the same fashion, then the finder of fact might be justified in finding collusion. In local health care markets, a publication of unfavorable information concerning a particular provider could easily trigger a uniform response by competing purchasers of that provider's services. Such responses might be attributable to fear of criticism or possible malpractice suits. On the other hand, a boycott claim might be based on the theory that no single competitor would forego the patients that provider could refer unless it was assured that others would do so as well. Among the safeguards that should be adopted to minimize the risk of a successful conspiracy charge is the couching of information in the form of objective facts, not of recommendations for action of a particular kind. Collaboration in the collection and dissemination of information, while justified by the efficiencies achievable from pooling information and in processing and publishing it, must at all points create no greater danger to competition than is reasonably necessary to achieve those efficiencies. Some protections against unfair actions harmful to individual providers, while not strictly required by law, would be highly desirable as a way of demonstrating good faith and reassuring courts that quality assurance was the sole consideration in the actions taken.33 Collaborators must also avoid coercing participation in any quality assurance program for collecting and disseminating information they might wish to launch. Thus, participation in a joint information program must be voluntary, not enforced by threats to boycott nonparticipants. Likewise, the collaborators should avoid brokering anticompetitive actions by others, such as by inducing local employers, hospitals, or health plans to act in concert in refusing to deal     600, 612 (1914). A conspiracy to boycott could not be inferred from an exchange of information and opinion, however, if that exchange had value other than as a signal for concerted action. Quality-related information can be viewed as having such value. 32   In general, antitrust plaintiffs, to establish a conspiracy, "must present evidence that tends to exclude the possibility that the alleged conspirators acted independently." Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U. S. 574, 588 (1986) (stating test for summary judgment in conspiracy cases), quoting Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 764 (1984). 33   Cf. Silver v. New York Stock Exchange, 373 U.S. 341 (1963).

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--> with a discredited provider or with a nonparticipant in some group-sponsored program. As a general rule, each market participant should be left free to make its own judgments about participating in joint activities and about the implications of objective information. On the other hand, it may be possible to take actions that make it distinctly more attractive for independent actors, acting in their own competitive self-interest, to decide one way rather than another. In general, a community-wide information system engaged in profiling providers should not purport to make decisions on individual providers' eligibility to participate in individual health plans. Such decisions should be made independently by the plans themselves, using information not only from the joint undertaking but from other sources as well. One purpose of the Health Care Quality Improvement Act of 198634 was to reduce the legal risks of quality assurance efforts by individual hospitals, other health care entities (including health plans), and local medical societies. Its principal effect is to provide protection against private suits for money damages (including antitrust suits seeking treble damages) where "a professional review action [is taken] in the reasonable belief that the action was in furtherance of the quality of care." Although the act provides a modicum of protection for entities that follow its detailed specifications,35 it would not be available to protect collaborative activities of managed care plans, health insurers, or employer coalitions. To be sure, the act reflects a congressional policy favorable to some forms of quality-enhancing joint action (by professional societies, medical staffs, and the like) and might be cited as a sign that Congress does not trust either the competitive market or antitrust courts, left to their own devices, to give appropriate weight to quality considerations. Nevertheless, antitrust law would almost certainly still bar concerted refusals to deal even if motivated by quality concerns and would apply in the normal fashion to other kinds of quality assurance efforts undertaken by multiple entities (rather than by one of the entities defined by the act). It would seem that the only way that collaborating health plans could take advantage of the limited protections in the 1986 act would be by organizing a formal "professional society" dedicated to admitting only high-quality physicians and other professionals as members. Although each health plan would still have to decide for itself whether to include nonmembers of this ''society" in their panels, this visible sign of special competence might alert consumers and others 34   42 U. S. C. § § 11111–11115 (1995). 35   A health plan might not find it worthwhile to follow the act's requirements for several reasons: (1) Meeting those requirements is costly. (2) The act merely restates, possibly restating but not dramatically altering, the plaintiff's burden of proof. (3) The main relief provided by the act (a shifting of the defendant's legal costs to the plaintiff who brings a frivolous claim) is not automatic. (4) It should not be hard for a health plan to avoid opening itself to costly litigation by not doing anything that even arguably violates the law, which permits health plans to terminate physicians and other providers at will or in accordance with their contracts.

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--> to quality differences among providers, Obviously, however, physician-sponsored organizations might have agendas of their own. Selecting High-Quality Providers A possible strategy for improving the quality of care would be to encourage providers to specialize in providing particular services. It is widely believed, on the basis of some evidence, that the proficiency of providers in doing particular procedures increases with the number of procedures they do.36 Collaborating health plans might therefore be tempted to agree to direct their business to particular providers that have demonstrated superior proficiency or that can be expected to achieve it. Unfortunately, collective efforts by health plans to favor one or a few providers with their business would raise antitrust problems. For example, an agreement to use only a designated provider could be characterized as a boycott of other providers. Although joint purchasing of a particular service might be defended on the ground of efficiencies gained in searching the market and negotiating contracts, any arrangement in which more than a subset of the purchasers in the market participated might be objected to on the ground that it enables the collaborators to exercise monopsony power over the providers seeking contracts. Finally, if the collaborators proceeded by inducing the providers themselves—local hospitals, for example—to agree to specialize in different fields, those agreements would fall within the per se rule against market division arrangements.37 Although the discussion below suggests some ways in which govern- 36   For example, Chassin MR. Assessing Strategies for Quality Improvement. Health Affairs 16:151,154–155, 1997 (observing correlation between improved cardiac surgery survival rates and New York regulations limiting number of hospitals permitted to perform cardiac procedures); Grumbach K, Anderson GM, Luft HS, Roos LL, Brook R. Regionalization of Cardiac Surgery in the United States and Canada: Geographic Access, Choice and Outcomes. JAMA 274:1282, 1995. 37   Many communities have had past experience with so-called comprehensive health planning. In the late 1970s, the question arose whether a local planning agency could broker agreements between hospitals under which each competitor would specialize in different services. Even though both state and federal health planning legislation appeared to ratify the then-prevalent notion that competition was not a reliable force in the health care sector, the antitrust agencies and most courts took the position that market division agreements were unlawful per se. See, for example, National Gerimedical Hosp. & Gerontology Center v. Blue Cross of Kansas City, 452 U.S. 378, 393 (1981) (federal health planning legislation held not to create "a 'pervasive' repeal of the antitrust laws as applied to every action taken in response to the health-care planning process"); Havighurst CC. Health Planning and Antitrust Law: The Implied Amendment Doctrine of the Rex Hospital Case. North Carolina Central Law Journal 14:45, 1983. But see Bolze RS and Pennak MW. Reconciliation of the Sherman Act with Federal Health-Planning Legislation: Implied Antitrust Immunity in the Health Care Field. Antitrust Bulletin

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--> mental involvement might immunize such arrangements, it is not easily within the power of private competitors alone to eliminate competition even in the name of quality. In general, it appears that without special legislation sheltering anticompetitive agreements, a collaborative strategy of promoting quality by encouraging local providers to become "centers of excellence" would succeed in avoiding antitrust problems only if the collaborators confined their effort to collecting information on comparative performance. Each health plan and others in the community could then decide independently what action to take on the basis of the evidence provided. To be sure, if the high-quality provider charged higher prices, some competing health plans might not include it at all or might require the patient to pay the difference over a lower-cost service. If the quality advantage was substantial, however, it might enable the provider to charge a lower price, reflecting economies of scale and the lower cost (including lower liability costs) that can accompany better outcomes. In any event, a provider that achieved a local monopoly by means of offering a better product (and not by engaging in exclusionary practices) should not have to worry about being charged with monopolization under section 2 of the Sherman Act. Lobbying and Working with Government The Sherman Act has been authoritatively limited in its application to political activity. Under the so-called Noerr-Pennington doctrine, collective lobbying for anticompetitive legislation is not subject to antitrust challenge—even if some misrepresentation is involved.38 Although this principle may seem to derive from the free speech guarantees of the first amendment, it is more accurately viewed as a narrow construction of the Sherman Act that attributes to Congress an intention to regulate only behavior in the marketplace, not political activity. To be sure, one might (under so-called public choice theory) question the ability of political and legal processes to protect consumers against anticompetitive legislation or official action promoted by special interests. Nevertheless, it would be hard to maintain that antitrust law was intended by Congress to limit the political power of well-positioned interest groups.39 Limitations on the Noerr principle     29:225 (1984) (concluding that usual antitrust tests should be relaxed in the presence of publicly authorized health planning). Especially in view of the repeal of the federal health planning act in 1986, health plans competing in local markets should not rely upon local planning agencies (or their modem equivalent) to immunize agreements that offend antitrust principles. 38   See generally Elhauge E. Making Sense of Antitrust Petitioning Immunity. California Law Review 80:1177, 1992. 39   See Eastern R.R. Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) (rejecting antitrust claim by trucking firms that railroads waged a publicity campaign "designed to foster the adoption and retention of laws ... destructive of the truck

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--> include the so-called sham exception, which prevents competitors from casting their activities as calls for political action when their true purpose is to inspire a boycott or other direct collective action.40 Under the Noerr doctrine, therefore, private interests could freely combine to seek governmental action favorable to the maintenance of quality. Thus, for example, an agreement to report a particular provider to a public authority for possible sanctioning would be permissible, if it did not fall within the "sham" exception as a signal also to boycott that provider prior to action being taken. The resulting state or local legislation or regulation, even if highly anticompetitive, would not itself be invalidated or overridden by the federal antitrust laws as long as certain conditions were met. The general rule is that federal antitrust law will defer to state law only if (1) "the state itself," through its legislature or supreme court, has "clearly articulated" a policy at odds with the federal policy of maintaining competition and (2) the state has supplied appropriate oversight ("active supervision") of any private groups that it has authorized to act anti-competitively.41 State legislatures are routinely lobbied, of course, by interest groups without fear of antitrust action, and many state laws that could be characterized as restraints of trade are on the books without question as to their validity under federal law. Indeed, in recent years, some 19 states have enacted so-called provider cooperation laws for the purpose of sheltering collaborative activities of certain health care providers, particularly hospitals, from the strictures of federal antitrust law.42 Although these laws have not been tested for compatibility with federal law, the most carefully drafted ones will probably pass muster. The best example of a well-drafted law is the North Carolina Hospital Cooperation Act of 1993. This statute includes a finding that "cooperative agreements among hospitals and between hospitals and others for the provision of health care services may foster improvements in the quality of health care" and provides as follows:     ing business"); Missouri v. National Organization for Women, 620 F.2d 1301 (8th Cir.), cert. denied 449 U.S. 842 (1980) (Sherman Act construed not to apply to National Organization for Women's boycott of the state's convention facilities; the boycott was aimed at getting the state legislature to ratify the Equal Rights Amendment). 40   See Noerr, 365 U.S. at 144; Federal Prescription Service, Inc. v. American Pharmaceutical Ass'n, 663 F.2d 25 3 (D.C. Cir. 1981) (campaign against mail-order sales of prescription drugs, although disingenuous in its professed concern for the pharmacist-patient-physician relationship, was held to have injured plaintiff only as a result of governmental action and thus not to violate the Sherman Act). 41   California Retail Liquor Dealers' Ass'n v. Midcal Aluminum, Inc ., 445 U.S. 97 (1980). 42   See generally Blumstein JF. Assessing Hospital Cooperation Laws. Loyola Consumer Law Reports 8:98, 1995–1996; Blumstein JF. Health Care Reform and Competing Visions of Medical Care: Antitrust and State Provider Cooperation Legislation, Cornell Law Review 79:1459, 1994; Vance MA. Immunity for State-Sanctioned Provider Collaboration After Ticor. Antitrust Law Journal 62:409, 1994.

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--> A hospital and any person who is a party W a cooperative agreement with a hospital may negotiate, enter into, and conduct business pursuant to a cooperative agreement without being subject to damages, liability, or scrutiny under any State antitrust law if a certificate of public advantage is issued for the cooperative agreement, or in the case of activities to negotiate or enter into a cooperative agreement, if an application for a certificate of public advantage is filed in good faith. It is the intention of the General Assembly that immunity from federal antitrust laws shall also be conferred by this statute and the State regulatory program that it establishes.43 Assuming that the North Carolina act's numerous requirements were met, it would probably be possible for employer coalitions or coalitions of health plans to broker otherwise unlawful arrangements between hospitals that permit the division of markets and the specialization that can thereby be achieved. In states lacking such legislation, such arrangements would be highly problematic. Moreover, most of the state laws are aimed at immunizing hospital agreements, not agreements between competing health plans or competitors of other kinds. Thus, they lack utility for immunizing arrangements to which a hospital is not a party. Although state legislatures can confer so-called state-action immunity on anticompetitive activities, providers must exercise special care in relying for immunity on the actions of municipalities and other subdivisions of state government. If such a governmental entity does not possess clear delegated authority from the state legislature to act in anticompetitive ways, it is not capable of conferring antitrust protection. In federal eyes, governmental subdivisions cannot exercise the same sovereign power as "the state itself." Thus, it is important for private collaborators relying on the state-action exemption to satisfy themselves that the state has effectively immunized any anticompetitive conduct in which they propose to engage. Conclusion The lesson here is that antitrust violations are unlikely to be found if collaborating health plans seeking to raise the quality of health care can successfully confine their commercial (as opposed to their political) activities to developing and disseminating information that makes the competitive market, which de- 43   N. C. Gen. Stat. § § 131 E-192.3 (1996). A "certificate of public advantage" is to be issued by the North Carolina Department of Human Resources if "it determines that an applicant has demonstrated by clear and convincing evidence that the benefits likely to result from the agreement outweigh the disadvantages likely to result from a reduction of competition." N. C. Gen. Slat. § 192.4. However, the statute gives the Attorney General a veto over the issuance of any certificate. In addition, it requires periodic reports from the parties and permits revocation of certificates either for noncompliance with "conditions" contained therein or after a reassessment of the "benefits and disadvantages" that are to be weighed in approving the agreement.

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--> pends fundamentally upon independent decision making by competing entities, work better and give greater weight to quality considerations in purchasing. Even through the law will continue to be vigilant against concerted action that interferes with the competitive process, there would seem to be many opportunities for useful collaboration by competing health plans. To be sure, there can be no assurance that private parties, particularly providers whose competitive opportunities are reduced by the circulation of information concerning them, will not initiate antitrust suits that are costly to defend. Nevertheless, conscientious efforts to improve the quality of care should survive antitrust scrutiny in nearly every case, and most actions stand a good chance of being dismissed at an early stage. Although antitrust law has often been invoked by competitors injured by the circulation of information, modern courts are increasingly inclined to recognize that the Sherman Act was intended by Congress to protect "competition, not competitors."44 Thus, if a private injury results only from competition itself, the complainant should soon be out of court. Although losers in the competitive race will always look for scapegoats and significant costs can be incurred in establishing that the competitive process was not interfered with in some way, collaboration in pursuit of quality goals should not be deterred by fears about antitrust consequences. Collaboration For Quality Improvement Among Managed Health Care Organizations: What Can Be Learned From The Experience Of Other Industries? George C. Eads, Ph.D. Frequently, when organizations discuss collaboration, their lawyers will tell them it might be illegal, and that is the end of the discussion. This often prevents organizations from engaging in some very interesting and important opportunities. Why Do Organizations Collaborate? Economists refer to externalities. What this means is that something that one group does generates a benefit or a cost that does not completely return to that group. A positive externality, for example, is basic research, where the research is financed by one group and it benefits others. An example of a negative externality is pollution. In that case, one group pollutes, but the cost is borne by others. 44   Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977). Despite this dictum, it is not always easy to recall that the antitrust laws are primarily concerned not with helping weaker competitors or with the unfairness of "ganging up" on a victim but with the impairment of competition itself, the process of independent decisionmaking.

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--> Collaboration is one way to internalize or to capture either positive or negative externalities. This is an important issue, particularly when parts of the industry are fragmented, as health care is. When a single firm dominates the industry like Bell Laboratories was in telecommunications, the dominant firm believes that it is likely to capture the benefit of its work without collaboration. For example, Bell Laboratories could afford to do basic physics and math research because they would be able to use their findings in telecommunications. The fact that they could not capture all of the benefits was unimportant. Similarly, in the 1940s through the 1960s, General Motors supported basic research on automobiles because it knew it could make use of whatever came out of the research. Today, in the automobile industry, the Partnership for a New Generation of Vehicles is a collaborative effort of all U.S. automobile manufacturers, and in telecommunications, the Semiconductor Consortium has been formed. These efforts reflect the fact that the industries have become much more fragmented and no one organization can capture externalities. Examples of these externalities include the establishment of standards, a common way of doing things. An example is the size and shape of electrical plugs in this country. There is a cost to standards, however, and that cost is flexibility. If an organization now believed that it could improve the shape of the electrical plug, it would be nearly impossible to implement that improvement. Why Do Organizations Refuse to Collaborate? One reason an organization might refuse to collaborate is the perception that it could lose market share by not being the first to produce something; that is, there may be a reluctance to forego product differentiation opportunities. In industry, the classic case of this is from Japan, in particular, the joint work to develop the 64 kilobyte random access memory (RAM). In the 1970s and 1980s, the 64-kilobyte RAM project was initiated by the Japanese government. Participation in the project was not particularly voluntary, and was not always enthusiastic. Certain firms did not send their best people or walled off parts of their activities to prevent ideas from "leaking out." The RAM project collaboration worked to some degree because it managed to raise the majority of the Japanese electronics industry to a common level very quickly and enabled a common approach to research. However, it created a myth about collaboration and how it works that has served the Japanese badly in other areas. Since a change in the antitrust law in 1988, 15 research consortia have been established by domestic automobile makers. In most of these cases, however, the motivating factor has been social or political pressure, not the market. For example, the Advanced Battery Consortium and the Low Emission Paint Consortium are activities that the government has encouraged because it is trying to

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--> reach an objective that does not engender much support from the business community. Another collaborative effort by the automotive industry is the Development of Advanced Technologies and Systems for Controlling Dimensional Variation in Automobile Body Manufacturing. It is also known as the "two-millimeter project." The objective is to have equivalent dimensional pieces in vehicles to be on average within two millimeters of variation. The "body in white," the basic structure of the car is manufactured from large sheets of steel. It is important, but very difficult, to manufacture the various critical dimensions of the body in white within plus or minus two millimeters in all of the critical intersection points at a rate of production of about 60 bodies per hour. No one firm and no one part of the industry could do this. Making bodies that fit together involved not just the automobile manufacturers but the entire industry that supplied the various parts of the assembly process, most of which are relatively small firms. One thing that collaboration does is provide a way of bringing together very diverse skills and organizations. The two-millimeter project began in September 1992 and ended in 1996. By December 1995, the five assembly plants had reached or exceeded the standards. The project involved joint funding: About $5 million came from the Advanced Technology Program of the federal government and about $9 million came from the joint venture partners. Universities were also involved. Obstacles to the project were as much institutional and cultural as they were technical. The serious technical problems that had to be overcome involved people working together in different ways. Assembly plant engineers and line operators were not eager to change what they were doing, and all saw such changes as involving risk. In addition, if it is possible to identify and improve suppliers, they could have leverage over the organization that they supply. Small to medium-sized companies generally have small or no research and development budgets. Yet, just as in this example, the various elements were critical to making the collaboration work. How Are These Examples Relevant to Health Care? Health care is a service industry. Unlike automobiles and products that are more tangible, exactly what is produced and how it is produced are much more difficult to define. One risk in collaboration is that an organization may forego the possible benefits of differentiation. Others are the complex activities and relationships required to collaborate. The two-millimeter project was simple compared with the health care system and the large number of entities involved in generating health care. Finally, collaboration does not happen automatically. The federal government and certain large groups of employers may need to be involved. In collaborative efforts with a variety of contributors, the interests of the different parties

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--> must be balanced, but the desired outcomes of collaborative efforts are not always easily agreed upon. In sum, collaboration can be useful, especially if the industry is fragmented, but it is difficult to achieve. Organizations need to understand that collaborative activities can be costly, but they can also present potential advantages.