On June 19, 2014, Deborah Feinstein, Director of the Federal Trade Commission’s Bureau of Competition, addressed the Fifth National Accountable Care Organization Summit in Washington, D.C. Her full comments, entitled “Antitrust Enforcement in Health Care: Proscription, not Prescription,” are available on the FTC’s website: www.ftc.gov.

Ms. Feinstein’s comments follow the FTC’s recent successes in preventing ProMedica Health System’s acquisition in Toledo, Ohio of a rival hospital and St. Luke’s Health System’s acquisition in Nampa, Idaho of the Saltzer Medical Group physician practice.  The FTC contended in each case that the consolidation of health care providers resulting from each transaction would have reduced competition in the surrounding areas and raised prices for health care services.

Despite these two significant wins, Ms. Feinstein states “[i]t is critical to recognize that the integration of care provided to patients is fully compatible with core antitrust principles.” She also assures us that “there is no tension between rigorous antitrust enforcement and bona fide efforts to coordinate care, so long as those efforts do not result in the accumulation of market power.” The key question, of course, is how to coordinate care effectively without accumulating an unacceptable level of market power.

Although Ms. Feinstein does not answer that question directly, she does identify specific questions that the Commission will ask when reviewing provider collaborations. Three important “threshold” questions are the following:

  • Does the proposed arrangement offer the potential for pro-consumer cost savings or quality improvements in the provision of health care services?
  • Is there bona fide integration or is this simply a mechanism to enhance leverage with payers through joint negotiation?
  • Are any price or other agreements among participants regarding the terms on which they will deal with health care insurers reasonably necessary to achieve the benefits of collaboration?

A “no” answer to any of these questions is a red flag signaling that the contemplated “collaboration” may be challenged by the FTC as a “per se” illegal price-fixing or market allocation agreement between or among competitors.  A “yes” answer to all questions does not guarantee legality, but simply ensures that the proposed “collaboration” is entitled to review under a “reasonableness” standard to ensure that its likely effect will not harm consumers.

ACOs that participate in the Shared Savings Program automatically qualify for antitrust evaluation under the “reasonableness” standard. Nevertheless, the following anticompetitive “design features” also raise red flags that may cause closer scrutiny by the FTC.

  • Preventing payers from steering ACO patients to other providers.
  • Tying sales of ACO services to the purchase of services from non-ACO providers
  • Requiring exclusivity that prevents ACO providers from contracting with outside payers.
  • Restricting a payer’s ability to share cost, quality, efficiency, and performance information with enrollees.

The current designers of ACO’s appear to be well aware of these red flags and the anticompetitive problems they signal.  According to Ms. Feinstein, approximately 250 to 300 Medicare Shared Savings Program ACOs and several hundred commercial-only ACO’s have been created. Of these ACO’s, only two have requested an antitrust review. In addition, as of June of 2014, the FTC has neither opposed the formation of nor taken any enforcement action against an ACO.

The FTC’s enforcement focus obviously has been on provider consolidations such as mergers and acquisitions rather than joint ventures. Part 2 of this update will cover the FTC’s stated approach to provider consolidations and its response to claims of “increased efficiency” and “financial health” as justifications for proposed mergers and acquisitions.