Collaboration Among Competing Managed Care Organizations for Quality Improvement (1999)

In November, 1997, The Institute of Medicine convened a one-day conference to explore areas for potential collaboration to improve quality among competing health plans consistent with antitrust and other legal requirements. The conference was convened to clarify the limits of such potential activities and to explore ways to stimulate collaboration; in short, to explore permissible and promising areas for collaboration for competing health plans.

Competition has existed at the provider level in the pre-managed care era and continues among physicians, physician groups and hospitals today. What is new is the extent of competition at the managed care organization level in individual regional markets. As large numbers of individuals are enrolled in health plans, the potential for new forms of cooperation for improving quality of care becomes possible. Along with these new possibilities, however, come questions about whether they bring the potential for antitrust violation.

Collaboration is a way to capture either positive or negative externalities. When a single firm is dominant, the dominant firm believes it is likely to capture the benefit of its work without collaboration. When industries are fragmented, no one company can capture all the externalities such as the establishment of standards. In such circumstances, collaboration is more possible. Even without antitrust concerns, however, there are barriers to collaboration.

One reason an organization might refuse to collaborate with competitors is a perception that it could lose market share by foregoing product differentiation opportunities. Despite such reluctance and the cost and difficulty in doing so,

however, successful collaborations have improved entire industries. Examples are the automotive and electronics industry.

In the electronics industry, as in any fast-changing industry, most of what is proprietary is old, not current or future. Manufacturers whose products are in competition at the retail level collaborate on a next generation of technology, and for this reason sharing proprietary information and technologies is not a competitive threat.

What would induce determined competitive health plans to collaborate, even on quality improvement? There is, at present, little reward in the market for investing in quality. In part this is because they do not perceive that it will bring increased market share, and in part it is because investment in quality by one plan is likely to result in a ''flee-rider problem" where all plans benefit. Further, 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 efficiently address improvement efforts, even if plans were willing to accept the free-rider burden.

Collaboration is a strategy that plans might use to achieve economies of scale and avoid the free-rider problem. Purchasers are likely to 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 and to achieve. Potential areas for collaboration include:

• the identification of substandard practitioners, in part through carrying out the objectives of the Health Care Quality Improvement Act of 1986;
• joint practitioner educational efforts;
• joint public education efforts; and
• joint development of guidelines for the use of effective therapies.

Although one can make a plausible case for collaboration, there are barriers. One barrier is the perceived threat of antitrust scrutiny, though the perception is likely to be worse than the reality. Nevertheless, better guidance is needed about what forms of collaboration concerning quality that the antitrust laws clearly permit, what activities represent per se violations, and where there is uncertainty.

The market paradigm is embodied in the antitrust laws. These laws would welcome, not oppose, many forms of collaboration among competing health plans where the collaboration has the potentia for improving the quality of care. 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. Only if the likely anticompetitive effects outweigh the procompetitive ones will a particular collaboration be deemed a restraint of trade.

Although antitrust law prohibits naked agreements by competitors on the nature and quality of the services that they plan to sell as the use of coercive measures to enforce a particular standard or definition of quality, 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 aims at getting state and local governments to improve the quality of health care, even if the methods adopted by government might be deemed anticompetitive and illegal if employed by private interests.

The acceptability of particular collaborative activities cannot be answered definitively in advance as much will depend on the specific factual situation and the evidence. In general, however, 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 to decide for themselves how and with whom to do business.

Collaborators should definitely avoid certain kinds of concerted action that would fall under any of the so-called per se rules. Under these rules certain kinds of horizontal agreements among competitors are conclusively presumed to have a prohibited effect on competition and are thus treated as illegal "per se." Conduct outside the reach of the "per se rule," will be analyzed more fully under the so-called rule of reason. In such cases, there must be inquiry into the actual or probable effects on competition.

It would be unwise for competitors designing collective action to rely on being able to defend anticompetitive actions by pointing to good intentions, some alleged market failure, or arguable improvements in the quality of health care. Even if a given market were seriously imperfect, antitrust law provides no clear and reliable reason for competitor groups to substitute their own judgments for those of the market.

One collaborative quality assurance strategy that may be lawfully pursued by competing health plans involves the production and dissemination of information and opinion intended to better inform purchasing and other decisions. Clinical practice guidelines are an example of standards that might be privately developed (or adapted from published studies) and promulgated by a coalition of local health plans.

The legal system has not arrived at a clear consensus on how private standard setting and accrediting should be viewed for antitrust purposes. However, it is unlikely that programs for collecting and disseminating information or opinion

related to the quality of care will be viewed as per se violations of the antitrust laws. Well-run, fairly administered programs can be expected to survive scrutiny under the rule of reason.

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 it. That is, collaborators must avoid coercing participation to collect and disseminate information. Any such strategy should leave each actor free to make its own decisions about how to improve the quality of those decisions and produce better market outcomes. Concerns would arise if the data exchange were designed to trigger uniform, noncompetitive responses, serving as a signal for concerted action.

A possible strategy for improving the quality of care would be to encourage provider groups to specialize in providing particular services. 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. A collaborative strategy of promoting quality by encouraging local providers to become "centers of excellence" would avoid antitrust problems only if the collaborators confined their effort to collecting information on comparative performance.

Under the so-called Noerr-Pennington doctrine, collective lobbying for anticompetitive legislation is not subject to antitrust challenge—even if some misrepresentation is involved. Under the Noerr doctrine, private interests could seek governmental action to maintain quality of care. Thus, for example, it would be permissible to agree to report particular practitioner to a public authority for possible sanctioning.

State legislatures can confer so-called state-action immunity on anticompetitive activities; however, plaits must exercise special care in relying for immunity on the actions of local government. If such a governmental entity does not possess clear delegated authority from state legislature to act in anticompetitive ways, it is not capable of conferring antitrust protection.

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 depends fundamentally upon independent decision making by competing entities), work better and give greater weight to quality considerations in purchasing. Even though the law will continue to be vigilant against concerted action that interferes with the competitive process, there are many opportunities for useful collaboration by competing health plans. 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."

A number of imperfections in the health care market could be addressed by collaborative action. Cooperation makes sense in several areas: when the science is compelling; when plans are common customers of a supplier as well as being competitors; and when adverse outcomes occur rarely, and competitors want to use scientific methods to help guide improvement.

The social purpose of health care may justify special treatment under antitrust laws. That is, it should be possible for competitors to cooperate where the common good justifies it. For example, appeals by multiple managed care organizations to office-based practices to implement commonly accepted standards of infection control can be simplified by collaboratively developed standards with which compliance is required.

Other opportunities for collaboration exist to promote public health and research. On the public health side, common immunization registries for public health and improved immunization status of health plan populations should be encouraged. From a research perspective the opportunity to collect the data on rare conditions or experimental treatment would serve the larger public good in addition to the individual needs of health plans.