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|EI Senior Economist Allison M. Holt, an empirical microeconomist, specializes in quantitative analysis and assessment of damages in antitrust and class action matters.|
The Affordable Care Act of 2010 required the establishment of a Medicare Shared Savings Program by the Centers for Medicare and Medicaid Services (CMS). Under this program, Accountable Care Organizations (ACOs) could be established by primary care doctors, specialists, hospitals and other health care providers to jointly manage the health care of Medicare beneficiaries. ACOs’ purpose is to allow providers to work together to better coordinate patients’ health care, thus improving the quality of care, reducing duplication of services and reducing costs. Some health care providers seeking to establish ACOs for Medicare recipients were also expected to extend the expected cost savings to commercially insured patients. Because collaborations that involve an ACO under the Shared Savings Program might result in market power that would raise prices and reduce the quality of care, the U.S. Department of Justice and the Federal Trade Commission (the Agencies) issued antitrust guidelines on October 20, 2011, for these collaborations.
Unlike other pricing agreements among competitors, which are per se illegal, an ACO will be judged under the rule of reason to determine if its procompetitive effects outweigh its anticompetitive effects. These effects will be evaluated using data on cost and quality gathered by CMS, to determine if, in fact, these collaborations are decreasing costs to consumers and increasing quality of care. To qualify for treatment under the rule of reason, an ACO must use the same leadership, and clinical and administrative processes to serve their commercial patients as it uses to serve the Medicaid beneficiaries and it must meet all of the criteria set forth by CMS. If those criteria are met, then the Guidelines set forth by the Agencies will be used to determine if the ACO complies with the antitrust laws.
Those Guidelines state that ACOs that fall within a defined safety zone are unlikely to raise competitive concerns. This safety zone regulation indicates the importance that market share plays in the Agencies’ determination of market power and highlights that market share will be the first screening device in reviewing an ACO. For an independent ACO to fall within the safety zone, participants in the ACO providing a common service must have a combined market share of 30 percent or less in each primary service area (PSA) where they overlap. This market share analysis needs to be done separately for inpatient services, outpatient services, and each physician specialty. These services or specialties are evaluated separately based on their own PSAs.
Availability of the safety zone may depend on the use of non-exclusive agreements. Hospitals must have non-exclusive agreements with ACOs to fall within the safety zone—meaning that the hospitals are free to contract with private payers separately from their agreement with the ACO. A physician or physicians’ group must have non-exclusive agreements to qualify for the “rural exception.” The exception allows for one physician or physicians’ group in each specialty located in a small or isolated rural area to be in the safety zone even if the physician or group is above the 30 percent PSA market share cut off. Finally, if one of the ACO participants already has a share greater than 50 percent in its PSA, then to fall into the safety zone it too must have a non-exclusive agreement with the ACO.
The Agencies’ Guidelines also outline the evaluation criteria for ACOs outside the defined safety zones and circumstances under which such ACOs might raise competitive concerns. First and foremost, all ACOs, both inside and outside the safety zone should avoid sharing of information that would lead to collusion in competing sales of services outside the ACO.
For ACOs that are not within the safety zone, the Agencies provide a list of activities that might raise competitive concerns. First, any type of anti-steering provision that discourages private payers from directing participants to providers outside the ACO would be questionable. Second, the Agencies advise against tying sales of services within the ACO to the provision of services to providers outside the ACO. This type of exclusive contracting can harm both competing physicians and hospitals and the competing health plans buying the services. Third, exclusive contracting with providers that prevents them from contracting with private insurers outside the ACO should be avoided. The Agencies have consistently investigated firms with high market shares that engage in exclusive dealing. Finally, ACOs must allowhealth plans to provide information about costs and quality to their enrollees to enable them to make decisions about which providers to choose. ACOs with high market share should not restrict the ability of patients to obtain information about potential providers.
For ACOs seeking additional guidance, the Agencies have provided for a voluntary review process, where a newly-formed ACO can request an expedited 90-day review. This review will be a very fact-intensive process. Materials reviewed will include share calculations, business plans and other documents, lists of the common services that the ACO participants provide, a list of the five largest commercial payors that might potentially contract with the ACO and a list of competing ACOs. An ACO is also free to provide information to the Agencies explaining why it will not have market power in the relevant markets as well as any procompetitive arguments for its formation. After reviewing all the information it receives, the Agencies will advise whether the ACO likely raises competitive concerns, potentially raises competitive concerns, or does not raise competitive concerns.