Recently, a merged group, Urology of Central Pennsylvania Inc. (UCPI), consisting of five formerly independent urology practices in the Harrisburg area, and the Pennsylvania Attorney General’s Office reached an agreement to settle the case filed by the attorney general alleging antitrust theories arising out of the merger. The consent agreement was reached just a day after the suit was filed by the Attorney General’s Office in the U.S. District Court for the Middle District of Pennsylvania styled as Pennsylvania v. Urology of Central Pennsylvania Inc.

In this era of “accountable care” and other pressures and incentives for increased cooperation between, and amalgamation of, health care entities in order to become larger to accept the risks, as well as the costs, to be able to participate in the new reimbursement models in the industry, one large concern that is ever present as a counterbalance toward this push of bigness is the risk of an antitrust lawsuit. While oftentimes there are many benefits to the merging of physician groups, this case demonstrates the risks that are run from an antitrust perspective, even when the resultant group does not become the sole provider of a certain sort of medical services in a designated geographic area. The case also highlights part of the reasons that many providers want more definitive rules for forming accountable care organizations and assurances of the propriety of the same, so as not to run afoul of federal and state antitrust laws, as well as many other laws that may be implicated.

The case is of further note because of its location within the commonwealth and the interesting terms in the final order resolving the matter.

Factual and Procedural Background

In the Urology of Central Pennsylvania case, the attorney general filed a complaint in the U.S. District Court for the Middle District of Pennsylvania on Aug. 30, raising counts under the federal Sherman Act, the Clayton Act and pendent claims under the common law of Pennsylvania against unreasonable restraint of trade and against monopolies. The crux of the allegations were that the merger of five urology practices in and around Harrisburg substantially lessened competition in the relevant health care service market. The commonwealth sought permanent injunctive relief.

UCPI consisted of the following former practices, which merged effective Nov. 1, 2005, according to the complaint: Urology Associates of Central Pennsylvania P.C.; Keystone Urology P.C.; Mid-Penn Urology Inc.; Harrisburg Uro-Care Group; and Dr. William K. Daiber. All except Daiber were named as defendants in the suit.

The complaint states that the rationale for the merger was the desire of the urologists to provide services that were ancillary to the practice of urology, including intensity modulated radiation therapy (IMRT), computed tomography (CT) and radiation therapy for prostate cancer and imaging. A consultant was obtained and retained by the groups to facilitate the merger.

The resultant entity consisted of 13 urologists at five office locations throughout the Harrisburg area. UCPI entered into agreements for space, consulting services and equipment to own and open a Prostate Cancer Center in Camp Hill, Pa.

The complaint described various treatment options for prostate cancer. For treatment by radiation therapy, options included IMRT or brachytherapy for small to medium sized tumors. IMRT is a radiation therapy option for larger more aggressive tumors. Brachytherapy is often less expensive of an option for appropriate patients and may only be performed in a hospital, according to the complaint. IMRT may be performed in a hospital or a free-standing facility and was done at the Prostate Cancer Center. Formerly, these patients were referred out by the urology groups.

According to the complaint, after commencing services, about 99 percent of the Prostate Cancer Center’s patients were referred from UCPI. The attorney general alleged that the formerly independent practices would not have been able to have the professional personnel or capability to perform IMRT in-house and would have continued to refer appropriate patients to other radiation oncology centers in the relevant geographic market, which the complaint alleged to be a 20-mile radius of Harrisburg. According to the complaint, the urologists no longer perform brachytherapy.

The complaint further alleged that UCPI was able to obtain increased reimbursement rates for its professional urology services and related ancillary services. The attorney general asserted that these price increases would be passed on to local employers by way of increased premiums, co-pays, reduced coverage and/or restricted services. It defined both as urology services and also radiation oncology services for prostate cancers as relevant product markets. It considered the relevant geographic market for both sets of services to be the Greater Harrisburg metropolitan area, consisting of a 20-mile radius of Harrisburg. According to the complaint, an equivalent of seven other urologists provide urology services and 11 other radiation oncologists provide radiation oncology services for prostate cancer in this geographic market area.

The complaint summarized that within the defined geographic market area, UCPI controlled 84 percent of the market for urology services post-merger and a HHI score of 7,236 points according to the Horizontal Merger Guidelines of the U.S. Department of Justice and Federal Trade Commission. The complaint alleged that a new solo urologist would not be able to survive in this geographic market.

Terms of Final Order

On Aug. 31, the attorney general moved for entry of a final order, which was not opposed by the defendants.

In entering into the terms of settlement, the defendants did not admit to any liability or wrongdoing.

The settlement allowed that a health plan could initiate the contract resolution provisions of the settlement agreement if the following conditions were met: UCPI and that health plan attempted to negotiate a new contract for at least 180 days; UCPI made a demand greater than the terms of its current contract plus a specified inflation increase; the difference in offer and UCPI’s demand would equal more than $500,000 to UCPI based upon the number of patients seen in the previous year. The contract resolution provisions allow for an arbitration composed of three representatives accomplished by “last best offer.” The final order specifies those items that the arbitration panel must consider in resolving the dispute, including the existing contract (if any) with UCPI, prices paid by the health plan in the geographic area for the services, the costs incurred in providing urology services to UCPI’s patient, the rate of increase or decrease in the median family income in the geographic market, the inflation rate. The panel is not to consider the extent the health plan is or is not purchasing other services form UCPI.

The final order further detailed the intricacies and procedural processes for the arbitration, including that the entire arbitration process is to take no more than 90 days from the date of its commencement.

Other material terms of the settlement include some of the following. The final order further mandated that UCPI is not to refuse to treat patients based on their primary care or other specialty physician, their health plan or utilization of providers not affiliated with UCPI. UCPI may not require its physicians to refer patients to UCPI where a patient’s health plan does not participate with UCPI for a particular physician or service. Except to providers a UCPI physician does not believe to be medically appropriate, UCPI may not refuse to refer a patient to a non-UCPI provider when requested by a patient or his or her representative.

UCPI further had restrictions on health plans with which it may contractually engage. As part of this, it is not permitted to enter into any contract that limits UCPI’s ability to enter into a contract with another health plan nor may UCPI condition the terms of a contract with a health plan based on limiting the plan’s ability to contact with non-UCPI providers. As terms of the settlement, UCPI providers will be required to inform patients of the availability of radiation oncology-type services from non-UCPI providers in the geographic area by way of a written list, which must further disclose to the patient the anticipated costs to the patient or his health plan for treatment by UCPI.

UCPI will have further follow-up reporting obligations to the Attorney General’s Office. This includes a public annual report stating the monthly number of patients who received radiation oncology or CT imaging services (to the extent known) and the number of which were treated at a UCPI facility.

From a monetary perspective, UCPI was required to pay the commonwealth $100,000 to fund prescription drug purchases for urological diseases and $100,000 for reimbursement of expenses of the Attorney General’s Office. •

VASILIOS J. KALOGREDIS is the president and founder of Kalogredis Sansweet Dearden & Burk e, a health care law firm, and Professional Practice Consulting Inc., a health care consulting firm, in Wayne, Pa. Among his areas of expertise are group practice arrangements, practice sales and mergers, doctor contract drafting and negotiation, tax and retirement planning for physicians, joint ventures, fraud and abuse matters and evaluation of practice options for physicians. He can be contacted at 800-688-8314 or at BKalogredis@KSDBHealthlaw.com .

KARILYNN BAYU S is an associate at the firm. Her practice involves both litigation of health care related matters, including representation of licensees before the professional boards, and representing clients in health care transactions. Bayus graduated from Temple University’s Beasley School of Law in 2006. She may be reached at KBayus@KSDBhealthlaw.com .