Following up on a promise made by the chairman of the Federal Trade Commission (FTC) to the American Medical Association in June, the FTC, Centers for Medicare & Medicaid Services (CMS) and the Department of Health & Human Services Office of Inspector General will hold a workshop on the antitrust aspects of accountable care organizations (ACOs) on Oct. 5, 2010, at CMS headquarters in Baltimore.
The Patient Protection and Affordable Care Act of 2010 (PPACA) specifically contemplates the use of ACOs, and new regulations governing ACOs are expected soon. Both the FTC and the Department of Justice have expressed interest in ACOs’ potential to improve quality and contain costs, and have indicated that the antitrust laws will not necessarily stand in the way of their success.
In the meantime, all providers can take advantage of existing guidance to achieve greater efficiencies through integration, whether in anticipation of PPACA’s ACO program or to reduce costs and increase quality through other means. Indeed, PPACA has not changed the antitrust laws, and ACOs will have to live within the existing antitrust framework to succeed. This update provides a brief reminder of that guidance, which ultimately should provide the basis for any new guidance regarding ACOs.
Integration remains key
Whether an ACO is in the form of an independent practice association, a physician-hospital organization, or any other type of entity that might qualify, competitors’ efforts to negotiate prices jointly will face scrutiny under the antitrust laws. Naked price fixing is per se illegal. Sufficient integration among competitors, however, can permit the collaboration to enjoy scrutiny under the more lenient “rule of reason” analysis. Note, however, that integration is only a concern when an ACO is negotiating with private payors. As long as the ACO is dealing only with CMS, it will not be involved in negotiating prices so it would have no opportunity to engage in illegal price fixing.
Financial integration in the form of risk sharing (e.g., capitated payments), remains (and likely will remain) the easiest path to rule of reason treatment of an ACO or other network. Indeed, the enforcement agencies recognize a “safety zone” for physician networks where the network’s members share substantial financial risk and constitute 20 percent or less of the physicians in any particular specialty in a given market (30 percent for networks that are not exclusive). This safety zone, however, is just one way for a network to comply with the antitrust laws, and failure to satisfy a safety zone in no way means a network will run afoul of the antitrust laws.
ACOs and other provider networks can exist comfortably within the existing antitrust laws even without financial risk sharing, if they are sufficiently integrated clinically. Clinical integration requires, at a minimum: (1) mechanisms to monitor and control utilization of health care services that are designed to control costs and assure quality of care, including protocols for measuring clinical quality and procedures for disciplining members who fall short of those protocols; (2) selective enrollment in the network to ensure that all members buy in to the cost and quality goals; and (3) significant investment of human and financial capital by members to ensure that members have real incentives to abide by, as well as real tools to accomplish, the network's goals and protocols. The enforcement agencies have provided a great amount of detail on what it means to satisfy these benchmarks. That guidance almost certainly will remain valid under PPACA and beyond.
“Ancillarity” remains key
Key to passing muster under the antitrust laws will be the ability of an ACO to show joint negotiations on behalf of its otherwise competing members are “ancillary” to—that is, related and subordinate to, and reasonably necessary to further—the proposed clinical integration. The FTC has recognized joint negotiation can serve an important procompetitive purpose by helping to define those providers who are in and out of the network; that such definition can help promote the efficiencies sought by clinical integration; and that the lack of joint contracting might in fact undermine those efficiencies. However, ancillarity must be real: increased clinical quality cannot be a mere fig leaf for increased prices.
Market power remains a concern
The enforcement agencies remain concerned, and will continue to be concerned, with market power (and its proxy, market share). Market power is the ability to raise prices above a competitive level. The larger a proposed ACO’s market share, the more antitrust scrutiny it is likely to attract. Providers contemplating ACOs that may result in rapid accumulation of market share—e.g., proposed networks in previously unconcentrated rural markets—need to be very careful in implementing the ACO.
A key question for any ACO will be “exclusivity,” and will arise most often with primary care providers. Given the ACO structure contemplated by PPACA, a primary care physician can logically affiliate with only one ACO, and would necessarily refer patients exclusively within the ACO. The FTC has recognized that exclusive referral arrangement within a network may be necessary for a network to achieve its desired efficiencies.
However, if an ACO establishes exclusive relationships with most or all of the primary care physicians in a geographic market it could effectively preclude the creation of competing ACOs. In such a situation, the ACO could have market power and draw the scrutiny of the enforcement agencies or private litigants.
ACOs enlisting a large percentage of the primary care physicians in a given market will not necessarily conflict with the antitrust laws. Nonetheless, anyone contemplating an ACO in a rural or even suburban area that might result in such concentration of primary care physicians should exercise caution, at least until the FTC provides further guidance.
A second, but related, aspect of exclusivity involves exclusivity of contracting. If member providers are free to negotiate and contract independently with payors who choose not to contract with the ACO, the antitrust laws will tolerate greater market share by the ACOs. If the ACO makes its members contract only with the plans with which the ACO is contracted, there will be greater concern about the ACO’s market power and thus greater antitrust scrutiny.
Avoid “spillover” collusion
The agencies also remain concerned about potential anticompetitive “spillover” effects from joint negotiations. For example, if an ACO will jointly negotiate on behalf of a network of otherwise competing providers, there is a risk that the providers could use price data (or simply the ACO’s prices) to set prices for services provided outside of the ACO. An ACO (or any other network) should take care to prevent these spillover effects, including restricting access to pricing data and warning members of the antitrust risks of using such data.
The antitrust laws almost certainly will not stand in the way of PPACA’s ACO program. Guidance already exists for their creation and operation in a way that is consistent with the antitrust laws. While further guidance will help clarify the regulatory landscape, providers need not await that guidance to begin preparing for the future.
Joint contracting by ACOs is permissible, but needs to be demonstrably subservient to clinical integration. The larger an ACO’s market share in particular specialties, the greater its potential antitrust risk; ACOs can help mitigate that risk by limiting their market power, including contracting with plans on a nonexclusive basis. ACOs should take care to avoid collusion by their members on services not offered by the ACO.