Most Americans are familiar with the typical fee-for-service health care model: A patient visits a hospital, stays until reaching a certain health level, and then is discharged, without much collaboration between the hospital and the post-treatment patient. The Patient Protection and Affordable Care Act (PPACA) proposed a different model as part of its overall aim to improve the quality and reduce the costs of health care services.

Under the PPACA-created Medicare Shared Savings Program, providers are encouraged to organize themselves into accountable care organizations, or ACOs, to contract with the government on Medicare. ACOs can take many forms—networks of individual practices, hospital joint ventures and medical group practices are just a few examples. Providers in an ACO will continue caring for Medicare beneficiaries as they always have, but now with better coordination. Medicare will continue paying all of the providers the same fee-for-service payment that they’ve always received.

The big difference is that over a three-year period, the Centers for Medicare & Medicaid Services (CMS) will track per capita expenditures for Medicare beneficiaries attributed to the ACO. As an incentive for physicians and hospitals to treat patients with the appropriate level of care, if the ACO meets certain benchmarks in cost-savings, it will receive a portion of the savings. At the same time, the ACO will have to meet quality benchmarks to receive the bonus.

“What it’s trying to do is set up a payment system that aligns Medicare payments with the need to better coordinate care, improve quality and get some cost-savings out of the system along the way,” says Brent Rawlings, a McGuire Woods attorney who has written extensively on these issues.

A central concern has been how ACOs will be treated under antitrust law—specifically, Sherman Act Section 1, which prohibits conspiracies among individual actors that unreasonably restrain trade.

On March 31 the Federal Trade Commission (FTC) and Department of Justice (DOJ) issued a joint proposed policy statement on how the antitrust enforcement agencies will treat ACOs.

The guidelines provide clarity, but many questions and potential pitfalls remain—enough to scare many providers from attempting to form an ACO, experts say.  

“There’s been a fair amount of reaction from providers out there who say this doesn’t give enough comfort from an antitrust point of view, and that makes it less likely that people are going to want to immediately participate,” says Bruce Sokler, a member at Mintz Levin. “Many people, including myself, are skeptical that there will be anywhere near the number of ACOs [that the agencies anticipate].”

Raising Questions

Because providers don’t negotiate with Medicare, instead determining terms and conditions through a regulatory process, ACOs’ participation in Medicare wouldn’t raise antitrust concerns. The antitrust question would arise when the ACO, already in place to work with Medicare, now wants to use the structure to work with commercial health plans as well.

The thrust of the March 31 guidelines is that if ACOs are approved by CMS, the FTC and DOJ will use the “rule of reason” to analyze for antitrust purposes. This is a more forgiving analysis than treating them as per se illegal, as the agencies would treat naked price-fixing and market-allocation agreements between competitors. The rule of reason analysis weighs a collaboration’s potential anti-competitive effects with its potential pro-competitive efficiencies. The guidelines apply the analysis not only to the Medicare shared savings initiative, but also to ACOs’ dealings with commercial payors.

In addition, the guidelines set up a safe harbor for ACOs that have 30 percent or less market share in their primary service areas, on the principle that the lower the market share, the lower the risk that the ACO will be anti-competitive. Those ACOs won’t face challenges on antitrust laws.

Problematic PSAs

A provider’s market share will be determined within primary service areas (PSAs), defined in simplest terms as the ZIP codes from which 75 percent of the ACO’s patients are drawn. The PSA concept could be a burden for providers not used to the calculation and potentially lacking sufficient or accurate data to make the calculation. There’s also the possibility that a network could change. If, say, a new group of orthopedic surgeons joins a network, it could throw off the whole market share determination and trigger review.

“The concept of a PSA is new and has been received as being very controversial,” Sokler says. “It’s going to be impossible to do in many cases, and because it’s not something people are used to, everyone’s concerned about it.”

Mandatory Reviews

ACOs that fall outside the low- market-share safe harbor will fall in one of two buckets. Those with market shares between 30 percent and 50 percent will have the option of requesting a review. If the market share is greater than 50 percent, ACOs will face a mandatory review under which the antitrust agencies have 90 days to decide whether to challenge the ACO.

That’s a departure, says Robert Leibenluft, a partner at Hogan Lovells. Previously, provider networks would rely on their lawyers’ advice on whether to proceed with integration, but now many of them will have to go straight to the antitrust agencies if they wish to participate as a Medicare ACO.

“That’s very unusual and really unprecedented,” Leibenluft says. “Outside of large mergers, typically the antitrust agencies don’t approve or disapprove of planned conduct beforehand—instead they prosecute what they believe is bad conduct after it has occurred. Many ACOs will need to get prior approval from the antitrust agencies, which could require a lot of work, and they are concerned that the agencies won’t be able to provide those answers in a quick manner.”

The mandatory review process will also place those ACOs with more than 50 percent market share in the crosshairs of the antitrust agencies for non-Medicare purposes. Rawlings says that in a sense, ACOs that the FTC/DOJ challenges are worse off because if the agencies would challenge their entering into contracts with Medicare, they might also challenge such contracting with private payors. It follows, then, that for ACOs that fall in the 30 percent to 50 percent window, requesting review may not be the best choice.

“It’s nice to have a seal of approval from the agencies,” Rawlings says. “But at the same time, the agencies could say no, or [the review could] reveal other things that are problematic.”

Combined with the lengthy, complicated and costly CMS requirements for ACOs, the antitrust concerns may lead providers to view the hurdles of forming an ACO as too onerous for the potential benefits. The 60-day period for public comment on the FTC and DOJ guidelines began March 31.

“I keep hearing questions about whether [forming an ACO] is worth doing. Maybe people will get more comfortable with it over time, and maybe the government can make it more user-friendly,” Sokler says. “But at the moment, there’s a lot of uncertainty, and a lot of questions being asked of lawyers, and sometimes there aren’t clear answers.”