A physician-hospital organization (PHO) consists of 15 hospitals - with 2,247 staffed beds - and approximately 500 physicians. The PHO operates in a very large section of South Georgia, including the cities of Valdosta, Tifton, Thomasville, Moultrie, and Waycross. The PHOs' physician members represent approximately 90 percent of all physicians practicing in the region.

The PHO served as a vehicle through which competing hospitals and physicians could bargain collectively with health plans to obtain higher fees for themselves. The owner PHOs, member hospitals, and member physicians cancelled contracts with payers and informed them that the PHO would be the sole entity through which they would enter into payer contracts. To contract with the PHO, payers allegedly have had to accept the fixed physician fee schedule and fixed discount of no more than 10 percent off hospital list prices.

I need help to

1. Explain why this arrangement would be found "per se" illegal under the FTCs' analysis.

2. What kind of actions could be taken to restructure this arrangement to avoid a determination that it is per se illegal?

3. Discuss the alternate FTC analysis that is applied to such cases if they are suspect but not found to be per se illegal.

4. Scholarly references.