The Affordable Care Act enshrines a hope — that doctors, hospitals and other providers will team up to improve patient care and reduce costs. But there’s also a fear — that doctors, hospitals and other providers will team up to stifle competition and raise prices instead.

Creating so-called accountable care organizations, or ACOs, is a key element of health care reform. Making sure that these collaborative networks don’t hurt competition has fallen to the Federal Trade Commission and the Department of Justice’s Antitrust Division.

It’s a formidable task. During recent months, the two agencies have struggled to craft a policy that strikes the right balance — rigorous enough to protect the marketplace, but not so burdensome that it deters the formation of ACOs.

The stakes are high. “ACOs are absolutely critical to health care reform,” said McDermott Will & Emery partner Ashley Fischer, who is based in Chicago. “The current fee-for-service model creates incentives for islands.” That is, health care providers bill separately, treat separately and don’t coordinate with each other. “There’s no mechanism to make sure care is not duplicative,” she said.

Under the health care reform law, hospitals, primary-care doctors, specialists, home health care providers and others could jointly form ACOs, agreeing to manage all the health care needs for at least 5,000 Medicare recipients for at least three years. The idea is that they’ll save money by sharing information and avoiding unnecessary tests and procedures. In return, ACOs that meet quality standards get to keep some of the money they save. Aside from Medicare patients, the organizations are also likely to serve people who are commercially insured. The program is supposed to begin in January 2012.


On March 31, the Federal Trade Com­mis­sion (FTC) and Department of Justice (DOJ) issued a proposed policy statement outlining how they plan to enforce antitrust laws for ACOs. In a notice published in the Federal Register, the agencies recognized that ACOs “may generate opportunities for health care providers to innovate…and achieve for many consumers the benefits Congress intended.” But the agencies also warned, “Not all such ACOs are likely to benefit consumers, and under certain conditions ACOs could reduce competition and harm consumers.”

To evaluate prospective ACOs, the agencies will look at a new measure of market share, the “primary service area.”

Lawyers complain that devising these service areas will be both difficult and expensive. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo partner Christi Braun, who is based in Washington, said ACO participants will have to search, zip code by zip code, to determine where their patients come from and how much revenue they generated.

“Physicians’ practices do not necessarily collect and store billing data that makes it easy to pull out by zip code,” she said. “Even fairly sophisticated groups are really struggling.”

One client has already spent $50,000 on economists and legal fees in the effort, she said, “and we’re not even halfway there.” The fear, she added, is that the amount of shared savings an ACO may reap “may not cover the cost of the application.”

Jones Day Washington partner Toby Singer said the primary-service-area approach is different from the usual market analysis the FTC and DOJ conduct. “The agencies generally do not analyze every collaboration with respect to every service it provides,” she said. She questioned why such detailed data should be required here.

As for her clients’ reaction to the requirements, she said, “They’re horrified by the burden the analysis would impose.”

The concern of David Ettinger, a partner at Detroit-based Honigman Miller Schwartz and Cohn, is that the data will result in “a lot of false positives…and show lots of apparent problems in circumstances where historically the agencies have not raised concerns,” he said. “To call them separate markets is much more restrictive” than the current practice.

Those who pay the bills, however — including insurer Blue Cross/Blue Shield — don’t see it that way. In comments filed with the agencies, Justine Handelman, Blue Cross’ vice president for legislative and regulatory policy, urged the agencies to “resist diluting the proposed policy.…Congress did not legislatively weaken existing antitrust laws for ACOs.”

Blue Cross noted that Medicare, which has statutory rules governing pricing, is not especially vulnerable to predatory moves by ACOs — but private insurers will be. “Vigorous antitrust scrutiny of ACOs as they continue to evolve is critical,” Handelman wrote.

Once the primary service area has been determined, some ACOs will be off the hook. If all the group’s participants who provide a common service (say, dermatology or OB/gyn) together cover 30% or less of the primary service area, the ACO falls in the “safety zone” and doesn’t need to contact the antitrust agencies at all. These ACOs are “highly unlikely to raise significant competitive concerns,” the agencies found.

ACOs that cover between 30% and 50% of the primary service area have the option of seeking review, but are not required to do so. But those that exceed the 50% threshold for any service are subject to mandatory antitrust review.

These ACOs will have to submit documents showing all their primary-service-area calculations, business plans, information about competitors and more. The agencies promise a 90-day expedited review.


If the agencies find that the ACO’s formation would be anti-competitive, they’ll tell the Centers for Medicare & Medicaid Services, which then will refuse to let it participate in the shared savings plan. There is no appeal.

The policy breaks new ground in antitrust law, said Hogan Lovells Washington partner Robert Leibenluft, who headed the FTC’s health care division from 1996 to 1998. “It’s an unusual scenario — an agency having mandatory review prior to allowing participation in another government program,” he said. The arrangement turns the FTC and DOJ into antitrust regulators rather than law enforcers, he said.

As for the lack of appeal, “Whatever an ACO may or may not be entitled to under the Administrative Procedures Act, you want applicants to have the opportunity to appeal adverse decisions,” he said.

Added Singer of Jones Day: “As a matter of antitrust policy, it’s the wrong approach. Antitrust has never been a regulatory scheme. The agencies are not equipped to be regulators, and I don’t think they should be.”

Another concern, voiced by FTC Commissioner J. Thomas Rosch, is that the plan splits responsibility for reviewing ACO applications between the FTC and DOJ, an arrangement that he said will lead to “suboptimal enforcement.” The arrangement, he theorized, came in response to a letter from nine senators, echoing the preference of the American Hospital Association for oversight to be split. He called “disingenuous” their assertion that the two agencies have historically shared antitrust enforcement.

“It is incorrect to say that antitrust responsibility for a particular matter has historically been divided between the two agencies,” he wrote in a dissent to the proposed policy statement. “To the contrary, responsibility for a particular matter has historically been allocated to the agency with superior expertise and experience relevant to that matter. In this case, that agency is unquestionably the FTC. “

He said the FTC is an independent agency and, “as such, it is less susceptible to agency capture by the executive branch and those lobbying that branch.”

The antitrust agencies received 127 comments on the proposal. An FTC spokesman said there was no timetable to issue a final policy statement.

Fischer of McDermott Will gave the agencies credit for their effort. “They’re trying to draw some bright lines at the request of many stakeholders, and they did establish a safe harbor to give those ACOs that qualify some assurances,” she said. “But in some respects, the policy statement did not go far enough, and in other respects, many stakeholders commented it went too far. I hope the FTC and DOJ can revise it to make it more palatable.”

Added Matthew Cantor, a partner at Constantine Cannon in New York, “I’m fully behind the ACO experiment,” he said. “We’ve got to do something to get health care costs down.…But if to get to that goal there are so many legal hurdles to jump through, it’s going to make people less inclined to do so.”

Jenna Greene can be contacted at