Antitrust Law Daily Wrap Up, STRATEGIC PERSPECTIVES: Can Accountable Care Organizations shake antitrust concerns?, (Jun 6, 2014)

By Sarah E. Baumann, J.D.

Accountable care organizations (ACOs) are groups of providers and suppliers that band together to accept joint responsibility for the quality and cost of care delivered to their patients. They were established to promote both quality and efficiency in medical care. The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) encouraged the formation of ACOs by authorizing the Secretary of HHS to establish a shared savings program that would reward ACOs with incentives for meeting certain performance measurements.

The collaboration required between independent providers to create ACOs, however, necessarily raises the possibility of antitrust violations. In October 2011, the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) issued a policy statement that included safety zones for ACOs “that are highly unlikely to raise significant competitive concerns” to help providers forming ACOs ensure that they are compliant with the antitrust laws. This Strategic Perspective will provide an overview of the policy statement and discuss how it has affected ACOs more than two years after its release.

Overview of the ACO Program

Section 3022 of the ACA mandated the establishment of a shared savings program, which CMS implemented as the Medicare Shared Savings Program (MSSP). The program’s goals are to promote accountability to patients, coordinate items and services under Medicare Parts A and B, and encourage high quality and efficient service delivery through investment in infrastructure and redesigned care processes. Under the program, ACOs meeting certain quality and savings requirements are allowed to share in those savings. To be eligible to participate in the program, ACOs must:

• have a mechanism for shared governance;

• be willing to be accountable for the quality, cost, and care of beneficiaries;

• contractually agree to participate in the program for no less than three years;

• have a formal structure to receive and distribute shared savings payments;

• have at least 5,000 beneficiaries assigned to them and include enough ACO professionals to care for those beneficiaries;

• provide the Secretary with information about participating professionals sufficient to support the assignment of beneficiaries, the implementation of quality and other reporting requirements, and the determination of shared savings payments;

• have in place a leadership and management structure that includes clinical and administrative systems;

• define processes to promote evidence-based medicine and patient engagement, quality and cost measures reporting, and coordination of care; and

• demonstrate that they meet the Secretary’s patient-centeredness criteria.

To receive shared savings payments, ACOs must have per capita costs for beneficiaries that are below specified benchmarks. The benchmarks are estimates of what total Medicare Part A and B expenditures would have been for a particular ACO’s beneficiaries had the ACO not existed, even if some ACO beneficiaries received services outside the ACO. The ACO also must meet certain minimum savings rates and yearly quality standards with respect to 33 quality measures. The shared savings an ACO receives is a percent of the difference between the estimated average per capita Medicare expenditures in a year, adjusted for beneficiary characteristics, and the benchmark for the particular ACO. A one-sided risk model allows for a maximum sharing of 50 percent of savings, but not losses, only during the entire length of the first agreement period. A two-sided risk model provides for the sharing of up to 60 percent in savings, as well as losses, in all three years. Payments in the one-sided model are capped at 7.5 percent of an ACO’s benchmark, while payments in the two-sided model are capped at 10 percent of the benchmark. The shared savings information is detailed in a Final Rule published November 2, 2011 (76 FR 67802).

As of May 2014, 338 ACOs were participating in the MSSP, covering 4.9 million assigned beneficiaries in 47 states, the District of Columbia, and Puerto Rico. An additional 23 participated in the Pioneer ACO program. Only 1 percent of MSSP participants, or five ACOs, utilized a two-sided risk model. More than half of all ACOs (57 percent) included networks of individual practices; 39 percent included group practices; and 49 percent involved hospitals that were not critical access hospitals. When the first ACO performance period began in April 2012, 27 ACOs were participating in the MSSP, less than one-twelfth of the May 2014 figure.

Antitrust Enforcement Policy

Generally, market allocation and price-fixing agreements violate antitrust laws. Market allocation refers to the allocation of specific customers, types of customers, products, or territories among competitors; competitors agree to sell only to allocated customers or groups and refrain from selling to customers or groups allocated to other competitors. Price fixing is an agreement among competitors to charge the same price for goods or services. This characterization poses a potential problem for ACOs, which necessarily involve the collaboration of providers who may be considered competitors. To address antitrust concerns by providers interested in forming ACOs, the FTC and the DOJ (the Agencies) issued a Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (policy statement) on October 20, 2011. With one exception, the policy statement applies to all ACOs eligible for participation in the MSSP, regardless of whether they were formed before or after the date of enactment of the ACA. It includes ACOs that serve commercially insured patients, in addition to Medicare beneficiaries; however, it does not apply to mergers.

Rule of reason analysis. When competing health care providers that have engaged in a joint price agreement are financially or clinically integrated and the agreement is “reasonably necessary to accomplish the procompetitive benefits of the integration,” the Agencies will apply a rule of reason analysis. The analysis determines whether any anticompetitive effects are outweighed by the procompetitive effects. The Agencies determined that they will apply the rule of reason to ACOs participating in the MSSP that use the same clinical and administrative processes and governance and leadership structures to serve patients in commercial markets. They concluded that ACOs’ pricing agreements with private payers are typically reasonably necessary to allow the ACOs to improve health care delivery. The Agencies were comfortable making these determinations because CMS’ eligibility criteria for ACOs to enter the MSSP, such as a leadership and management structure that includes clinical and administrative processes and reporting on quality and cost measures, were generally consistent with the Agencies’ own discussion of clinical integration in their Statements of Antitrust Enforcement Policy in Health Care. Of particular importance was CMS’ monitoring of quality improvement and cost reduction by individual ACOs.

Safety zones. The Agencies have established a safety zone for ACOs that are highly unlikely to raise anticompetitive concerns, focusing only on physicians, inpatient facilities, and outpatient facilities, rather than other types of providers, such as clinical laboratories and nursing homes. Specifically, the safety zone criteria involve three categories of services: physician specialties, major diagnostic categories (MDCs) for inpatient facilities, and CMS-defined outpatient categories for outpatient facilities.

ACOs fall into the safety zone when independent ACO participants that make up the ACO and provide a common service have a combined share of 30 percent or less of each common service in each participant’s primary service area (PSA), if at least two participants provide that service to participants from that PSA. A PSA is “the lowest number of postal zip codes from which the [ACO participant] draws at least 75 percent of its [patients].” Each independent physician solo practice, fully integrated physician group practice, inpatient facility, and outpatient facility has its own PSA; each inpatient facility has a separate PSA for inpatient services, outpatient services, and physician services provided by its physician employees. Furthermore, to fall within the safety zone, hospitals and ambulatory surgical centers (ASCs) must be nonexclusive to the ACO, meaning that they are allowed to contract with private payers through entities other than the ACO. In an interview with Wolters Kluwer, Ashley Fischer, a partner at McDermott Will & Emery, noted, however, that ACOs may encounter difficulties meeting safety zone thresholds in every specialty.

ACOs qualify for a “rural exception” when the inclusion of certain physicians causes the share of a common service to be greater than 30 percent in any participant’s PSA provided that the ACO includes only one physician or physician group practice per specialty on a nonexclusive basis for any county that includes one or more “isolated rural” or “other small rural” zip code. The exception also applies to rural hospitals on a nonexclusive basis. Despite this exception, Fischer observed, “there will be some specialties in rural areas with only a few providers, and including just a few of them can result in a high PSA share.”

A “dominant participation limitation” applies where a nonexclusive ACO participant has a greater than 50 percent share in its PSA for a service that no other ACO in its PSA provides. The ACO, however, cannot require a private payer to exclusively contract with the ACO or limit its ability to contract with other ACOs or provider networks.

ACOs outside the safety zone. Although an ACO’s failure to meet safety zone requirements does not automatically indicate that it is anticompetitive, the Agencies suggest that ACOs falling outside of the safety zone avoid certain conduct to evade an anticompetitive label. For example, ACOs should refrain from including the improper sharing of competitively sensitive information, such as pricing information, that could lead to an increase in prices or a reduction in the quality or availability of health care services. The Agencies also warn that ACOs with high PSA shares or other possible indicia of market power should avoid discouraging private payers from incentivizing patients to choose certain providers; tying sales of ACO services to a private payer’s purchase of services from other providers; discouraging ACO participants from contracting with private payers outside the ACO through exclusive ACO contracts; and restricting private payers’ ability to make cost, quality, efficiency, and performance information similar to that used in the MSSP to its health plan enrollees.

Expedited voluntary antitrust review. ACOs that had not yet signed or negotiated contracts with private payers as of the date of enactment of the ACA and have not yet begun participating in the MSSP may request expedited 90-day voluntary antitrust review from the Agencies. ACOs are instructed to submit requests to both Agencies before they enter the MSSP; the Agencies will determine whether the FTC or the DOJ will perform the review. ACOS must submit:

• An application and supporting documentation, including, for example, a sample of each type of participation agreement documents discussing business strategies regarding competition in the Medicare and commercial markets and the level and nature of competition among ACO participants;

• Information sufficient to show the common services that two or more ACO participants provide to patients from the same PSA;

• The PSA of each participant, along with either the PSA share calculation or other data demonstrating the ACO’s current competitive significance;

• Restrictions that prevent participants from obtaining other participants’ pricing data for services not contracted through the ACO;

• The identity of the five largest commercial health plans or other private payers for the ACO’s services; the identify of other ACOs in any market in which the ACO will provide services; and

• Any other documentation relevant to its impact on competition.

The reviewing Agency will advise the ACO that it does not likely raise competitive concerns, potentially raises competitive concerns, or likely raises competitive concerns. The Agencies reserve the right to take further action when it appears that an ACO’s formation or conduct may be anticompetitive.

Activity since policy statement. On April 10, 2013, the FTC/DOJ ACO Working Group released a summary of its activities from October 2011 through March 2013. During that time period, only two organizations submitted requests for expedited voluntary antitrust review. The first applicant withdrew its request after being informed that it was ineligible for such review because it did not intend to operate in a commercial market, although the reviewing Agency offered to provide informal advice. Subsequently, the first applicant was accepted into the MSSP. The second applicant withdrew its request without explanation prior to review. As of the date of the summary, it had not participated in the MSSP.

The Working Group responded to 33 questions regarding participation in the MSSP; 25 of them related to PSA share calculations involved in safety zone analyses.

Policy impact. It is difficult to determine how well the review process is working, when so few ACOs or potential ACOs have taken advantage of it. Although the Agencies’ policy statement essentially offers ACOs a safe harbor in the form of safety zones, the guidance does not hold the weight of law. Indeed, although courts adjudicating antitrust matters may take the Agencies’ guidance into consideration, they are not required to rely on it in issuing decisions. Therefore, it is possible that an ACO may meet safety zone requirements or receive a review statement suggesting that it does not likely raise competitive concerns and still receive a negative ruling in a court of law. It appears, though, that ACOs may be relying on safety zones in performing competitive analyses.

In her interview with Wolters Kluwer, Fischer expressed a desire for the Agencies to expand their policy statement to apply to “purely commercial ACOs,” provided they would meet CMS’ eligibility requirements for the MSSP, including utilization of “the same governance and leadership structures and clinical and administrative processes as ACOs that do participate.” She also would like to see guidance on hospitals’ ability to clinically integrate in commercial ACOs and contract jointly solely on that basis.

Conclusion

The Agencies continue to stand behind their policy statement, despite providers’ concerns about mixed messages of collaboration versus antitrust enforcement. In a June 2013 keynote address to the 2013 National Summit on Provider Market Power Catalyst for Payment Reform, FTC Commissioner Julie Brill advised that providers engaged in “legitimate collaborative activities” had little to fear from the Agency. “Far from being a barrier to procompetitive collaboration envisioned in the ACA,” she noted, “antitrust aligns naturally with the goals of ACOs.” While there has been little news recently of Agency antitrust action against ACOs, analysts have noted an increase in FTC crackdowns on health care mergers. Brill, herself, stated that the Agency had increased enforcement activity related to hospital acquisitions of physician groups where a number of specialists in a particular area join a single hospital, giving the hospital too much market power in that specialty area. She suggested that it might behoove providers to enter into ACO arrangements to avoid antitrust issues raised by mergers, emphasizing that ACO participants must coordinate care, but are not required or even encouraged to consolidate.

David Balto, a former FTC policy commissioner testified on September 19, 2013, before the House Committee on the Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. In his opinion, “the most difficult issue the agencies must grapple with in the formation of these ACOs is market power, not integration.” He argued that clinically integrated physician-sponsored ACOs could provide competitive alternatives to markets dominated by hospitals. That being said, he noted that the FTC had not taken enforcement action against a group of physicians for exercising market power since 1994 and suggested that the agency should pay more attention to this area. He cautioned, “the ACA and the need to control healthcare costs should not be the basis for approving an otherwise problematic merger among healthcare payors.”

Attorneys: Ashley M. Fischer (McDermott Will & Emery)

MainStory: Antitrust