Antitrust Considerations In Forming Accountable Care Organizations And Bundled Payment Arrangements Under The Healthcare Reform Act

Monday, October 4, 2010 - 00:00

The recent healthcare reform act, The Patient Protection and Affordable Care Act (the "Act"), seeks to improve the nation's healthcare delivery system, in part, through incentives to enhance the quality of healthcare services provided to consumers, improve the healthcare outcomes for consumers and lower the costs (or at least increase the value) of such healthcare services. Two of the new reimbursement system mechanisms introduced by the Act to achieve the goal of incentivizing medical providers to deliver higher quality care at a lower cost are:

• Accountable Care Organizations ("ACOs"); and

• Bundled Payment Arrangements.

Each of these mechanisms will involve healthcare providers, often competing ones, collaborating to achieve the goals of higher quality care at lower costs. The Act does not exempt providers' use or implementation of either of these mechanisms from antitrust review, therefore, newly created ACOs and bundled payment arrangements will receive scrutiny from the antitrust authorities.

The Act (and likely the soon to be released regulations implementing it) does not enumerate a specific structure for ACOs or bundled payment arrangements that will be considered in compliance with the antitrust laws. It is likely that the Act's writers did not want to stifle the creativity of healthcare providers to develop and implement innovative and creative arrangements to increase service quality and lower costs. However, in the absence of such specific guidelines, providers must be careful to structure their ACOs and bundled payment arrangements to minimize the risk of violating the antitrust laws. Fortunately, there is guidance from the antitrust agencies in the form of the DOJ/FTC August 1996 Statements of Antitrust Enforcement Policy in Health Care ("DOJ/FTC 1996 Healthcare Statements") and prior enforcement actions by these agencies against past healthcare provider collaborations. While the antitrust agencies are likely to proceed cautiously in analyzing new ACOs and bundled payment arrangements, given the Act's reliance on such mechanisms to achieve its goals, they are likely to still employ the same zealous protection of competition as they have exhibited in recent years in the healthcare industry.

Accountable Care Organizations

The Centers for Medicare & Medicaid Services ("CMS") define an ACO under the Act as "an organization of healthcare providers that agrees to be accountable for the quality, cost, and overall care of the Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it." CMS/Office of Legislation, "Medicare Accountable Care Organizations Shared Savings Program Preliminary Questions & Answers." The Act specifies that physicians, other professionals, and hospitals may become ACOs, as well as other healthcare entities as may be determined by the secretary of Health and Human Services. Under the Act, ACOs that meet specified quality performance standards and Medicare cost benchmarks are eligible to receive a percentage of such cost savings, up to a limit, back from Medicare. Thus, in order to obtain such monetary incentives, healthcare providers must develop and create ACOs that, through their structure and management, lead to higher quality care at lower costs.

Bundled Payment Arrangements

The concept of bundled payment arrangements involves similar incentives to reach the same goal. The Act directs the Department of Health and Human Services to implement a national pilot program for bundled payment arrangements in which there will be a single Medicaid payment for multiple services by various providers to reduce unnecessary services and decrease costs. Here again, the payment will be linked to the quality and efficiency of the care in that incentive payments may be made to providers for meeting performance standards. By providing a single payment for an episode of care that may involve various physicians, a hospital, and other healthcare providers, the Act hopes to incentivize these providers to work collaboratively to develop cost-effective, quality care protocols. The providers will have to work together to determine the proper amount of services, and their costs, to make the single payment profitable for the participating providers.

Antitrust Considerations

Given that numerous healthcare providers, including competing ones, will be working together in ACOs and bundled payment arrangements, the goal of the federal antitrust agencies - the Federal Trade Commission ("FTC") and Department of Justice's Antitrust Division ("DOJ") - will be to ensure that the ACOs and bundled payment arrangements are not used by participating healthcare providers to stifle competition between competing providers ( e.g., by facilitating price-fixing or collusion) or allow such participating providers to restrict entry by new providers. Any such anti-competitive effects would be in direct contradiction of the Act's goal of improving healthcare services and lowering the cost for such services, which is why the Act does not preclude the antitrust review of these new payment systems.

The good news for healthcare providers regarding the antitrust review of future ACOs and bundled payment arrangements is that "the more things change, the more they stay the same." The Act does not introduce any new rules for the antitrust review of ACOs and bundled payment arrangements, so the FTC and DOJ will be using the same standards for review that healthcare providers already know and have been following. Many of these standards are encompassed in the DOJ/FTC 1996 Healthcare Statements that provide significant guidance regarding the proper formation and operation of healthcare-related joint ventures under the federal antitrust laws. The Statements focus on the proper financial and clinical integration necessary for healthcare provider collaborations to avoid violations of the antitrust laws.

The bad news unfortunately is also that things have not changed - the FTC and DOJ have been closely scrutinizing the healthcare sector in recent years and will continue such close scrutiny as the Act's reforms begin being implemented by providers.

While providers may ultimately develop ACOs and bundled payment arrangements that move beyond financial and clinical integration to achieve the Act's goals, at present, adhering to the antitrust agencies' guidance regarding such integration is the best way to ensure that an ACO or bundled payment arrangement does not offend the antitrust laws.

What Does Close Scrutiny Mean For Healthcare Providers' Implementation Of An ACO?

An ACO involving competing providers is unlikely to run afoul of the antitrust laws if it represents the type of significant clinical and/or financial integration enumerated in the 1996 DOJ/FTC Healthcare Statements (and in recent speeches by DOJ and FTC officials), including coordinating care through:

• redesigned care protocols;

• substantial utilization of health information technology;

• substantial investment in infrastructure and equipment;

• agreement to meet quality and cost targets, especially through the use of significant financial incentives to participants to achieve cost-containment goals;

• agreement to a capitated rate; and

• agreement to payment based on a predetermined percentage or premium or revenue from Medicare/Medicaid.

Moreover, the lower the market share of an ACO's competing participants in any product/service area, the lower the risk of violating the antitrust laws. While no ACO should think that it will be immune from antitrust scrutiny if its market share(s) is low, it is likely that the antitrust agencies will first focus on ACOs that include competing providers that represent a dominant share of a specific product/service market.

The antitrust agencies will be reviewing ACOs to ensure that there is significant financial risk-sharing and/or clinical integration such that the pro-competitive benefits of better care and lower costs are likely to be achieved.

Thus, as an example, best practices for a hospital in developing an ACO include the following:

• Hospitals should adhere closely to the soon-to-be-released regulations regarding the formation of ACOs, especially regarding financial and clinical integration.

• If a competing hospital is to be included in the ACO, the parties must be sure that the participation of competing hospitals is necessary and likely to result in tangible pro-competitive benefits; and the hospitals must be careful to avoid any unnecessary exchanges of information that would facilitate price or non-price collusion regarding services not included in the ACO's product offerings.

• Even when only one hospital or hospital system in part of the ACO, the parties must ensure that any exclusion of other service providers is based on pro-competitive concerns such as improving quality or lowering costs, not anti-competitive reasons.

• If the hospital has dominant market share in its service area, the hospital should be careful to make the ACO as inclusive as possible regarding independent service providers in order to avoid challenges concerning foreclosure or barriers to entry.What Does Close Scrutiny Mean For Healthcare Providers' Implementation Of Bundled Payment Arrangements?

In order to develop and implement a bundled payment arrangement, providers will necessarily have to discuss and exchange cost and price information necessary to determine how to provide a bundled service profitably. In addition, there will also be questions regarding which providers to include in the bundled service and which providers will be excluded.

Thus, as an example, best practices for a hospital in developing a bundled payment arrangement include the following:

• Hospitals should ensure that any exclusion of independent service providers is based on pro-competitive concerns such as improving quality or lowering costs, not anti-competitive reasons (especially if such proposed exclusions are suggested by the participating service providers or such providers have dominant market share).

• If the hospital has dominant market share in its service area, the hospital should be careful to make its bundled payment arrangements as inclusive as possible regarding independent service providers.

• If a competing hospital is to be included in the bundled payment arrangement, the parties must be sure that the participation of more than one hospital is likely to result in tangible pro-competitive benefits; and the hospitals must be careful to avoid any unnecessary exchanges of information that would facilitate price collusion regarding services not included in the package.

Conclusion

The Act attempts to strike a balance between allowing healthcare providers to develop and implement innovative and creative collaborative mechanisms to provide higher quality healthcare at lower costs while allowing the continued antitrust review of such mechanisms to ensure that anti-competitive effects do not result from such provider collaborations. Thus, the safest route for providers to implement ACOs and bundled payment arrangements is to adhere to the prior guidance from the antitrust agencies regarding healthcare provider collaborations, which means using significant financial and clinical integration. However, if the Act's goals are truly to be met, and the nation's healthcare system reformed, it is likely that both healthcare providers and the antitrust agencies will have to move beyond these tried and true formulations to new and unique collaborations.

Additional Guidance Regarding Forming ACOs

The FTC, CMS and HHS's Office of Inspector General will co-host a workshop at CMS Headquarters in Baltimore on October 5, 2010, addressing issues associated with ACOs. The workshop is free and open to the public.

To facilitate providers' efforts to develop ACOs, the workshop will address public comments on the legal issues raised by various ACO models. Physicians, physician associations, hospitals, health systems, payers, consumers, and other interested parties are invited to participate in the workshop.

The FTC press release and a link to the agencies' Federal Register notice, which includes a more in-depth explanation of the topics to be covered during the workshop, as well as information about how to register for the workshop, are at http://www. ftc.gov/opa/2010/09/healthcare.shtm.

It is likely that other workshops will be held in the future as the regulations regarding the Act are issued.

Scott B. Murray is a Member of Sills Cummis & Gross P.C. and handles antitrust issues.Before entering private practice, Mr. Murray spent almost three years with the Telecommunications Task Force of the Antitrust Division of the Department of Justice.The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Sills Cummis & Gross P.C.

Please email the author at smurray@sillscummis.com with questions about this article.