HEALTHCARE LAW H434 DR. NANCY SEIFERT The Interplay of Accountable Care Organizations and Antitrust Regulations Claire Ranit 2/27/2012 2 Introduction The Patient Protection and Affordable Care Act of March 2010 instituted law for the creation of Accountable Care Organizations which began enrollment in Medicare’s Shared Savings Program in January 2012 (Commission, 2011). Accountable Care Organizations will initially provide care to Medicare recipients with the hopes that private insurers will soon follow. However, the joining of healthcare entities in the creation of Accountable Care Organizations may increase the risk of violating antitrust regulations. With the increased risk it is important for healthcare administrators to have a proper understanding of the current antitrust regulations, the regulations put forth concerning Accountable Care Organizations, and how the Federal Trade Commission and Department of Justice will enforce such regulations. Accountable Care Organizations According to the final antitrust guidelines issued by the Federal Trade Commission and Department of Justice, Accountable Care Organizations may be formed through either mergers or joint ventures (McConnell, 2011). Accountable Care Organizations must include an array of healthcare providers and entities including but not limited to family practice clinics, specialty clinics, and hospitals which are able to serve a minimum Medicare population base of 5000 enrollees (Levey, 2011). A central part of Accountable Care Organizations is the role of Patient Centered Medical Homes in which the primary care physician and a care team coordinate the care of all their patients with the goal of increasing quality while reducing costs. Providers will be required to report on thirty-three quality measurements and will be reimbursed based on their ability to reduce costs and increase quality for the population they serve. There are two options as to how providers may enroll in Accountable Care Organizations with regards to how they will be reimbursed by the government. Providers may enroll and 3 choose to not take on the responsibility of reimbursing Medicare if they do not produce savings through their treatment. However, providers also have the option of enrolling and taking on the additional risk of covering the excess costs should their patient population cost more to treat than Medicare predicted. Providers who choose to participate in the second option of increased risk will have the ability to receive larger rewards for positive outcomes than those providers who took on less risk (Levey, 2011). In January 2012 healthcare organizations began enrolling with Medicare to become Accountable Care Organizations with a three year minimum requirement in the program (Commission, 2011). According to estimates performed by independent government actuaries, Accountable Care Organizations will save Medicare around $470 million over four years (Levey, 2011). However, the Department of Health and Human Services estimated the savings to be much higher with Medicare saving $960 million over the next three years and $5 billion over the next ten years (Kanige, 2011). While Accountable Care Organizations have the potential to save money for both the government and healthcare organizations, there are high potential upfront costs for the creation of Accountable Care Organization. Different organizations have debated over the costs of starting an Accountable Care Organization with the American Hospital Association estimating start up costs between $11 million and $26 million while regulators estimated the costs to be around $1.8 million (McConnell, GOP lawmakers call for rewrite of ACO plan, 2011). The overarching goal of Accountable Care Organizations is to reduce costs while increasing the quality of care which should translate into a healthier population overall that requires less money to be spent on healthcare. However, the incentive for an entity to join an Accountable Care 4 Organizations is that it may share in the cost savings which, in the long run, will translate into a healthier population and increased revenues. Both hospitals and private insurance plans have taken actions to form Accountable Care Organizations or organizations similar in philosophy to Accountable Care Organizations. Hospitals have been the most proactive healthcare entities in creating Accountable Care Organizations such as Johns Hopkins Medicine as well as large hospital networks in both Kentucky and New York. Along with the hospital in Baltimore and the twenty-five clinics in Maryland that Johns Hopkins Medicine had already been operating, they recently acquired both Suburban Hospital in Bethesda, Maryland and Sibley Memorial Hospital in Washington. Three of the largest hospital organizations in Kentucky are working on a merger while three regional health care systems in upstate New York are also working on a merger which would include hospitals, clinics, and nursing homes (McConnell, HealthSpring deal shows commercial appeal of ACOs, 2011). The recent actions of Cigna Corporation to acquire HealthSpring Incorporated are an example of the actions of a private insurance company to form an organization similar in philosophy and practice to Accountable Care Organizations. Cigna Corporation is a worldwide provider of multiple types of insurance, including a health insurance line which assists large corporations in providing self-funded programs. HealthSpring Incorporated is an insurance company that focuses on providing coordinated care plans with an emphasis on Medicare Advantage Plans and they have options available in multiple states (McConnell, HealthSpring deal shows commercial appeal of ACOs, 2011). With the ACA encouraging so many healthcare organizations and insurance companies to join together, there is concern that market forces will become too concentrated within certain 5 Accountable Care Organizations and there will be increased risk for violating healthcare antitrust regulations. Antitrust Regulations in Healthcare While there have been many goals with the passing of antitrust regulations in healthcare, the overarching goal has been to ensure that market power is not too strongly centered around individual organizations so as to ensure fair competition. Antitrust regulations are necessary because there is an asymmetry of information in the healthcare marketplace between consumers and providers. Furthermore, consumers rely on providers to inform them how much healthcare they should consume and a large portion of consumers interact monetarily with healthcare entities through health insurance providers who negotiate the cost of the healthcare. Antitrust regulations are attempting to prevent the creation of monopolies or a monopoly like environment in which one large healthcare organization holds a majority of the power and may therefore dictate and increase the cost of care at will. A suit was brought against doctors in Grand Junction, Colorado by the Federal Trade Commission for coming together in order to negotiate fees with insurance companies. The group of doctors had essentially agreed on non-competition in regards to negotiating reimbursement rates with insurance companies. Had the doctors been able to follow through with their efforts, they would have been able to set their reimbursement rate as high as they desired because in order to properly serve their population, the insurance companies were required to contract with doctors in Grand Junction, Colorado. The Federal Trade Commission decided to allow the doctors to participate in a limited amount of collaboration, but only in a way that would reduce costs and increase the quality of care. As a result of the Federal Trade Commission’s ruling and 6 the efforts of the doctors, some of the best medical outcomes and lowest healthcare costs in the United States can be found in Grand Central, Colorado (Pearlstein, 2010). The Carilion Clinic system based out of Roanoke, Virginia is another healthcare system making efforts to become an Accountable Care Organization however they have faced problems in the past with both the Department of Justice and the federal Trade Commission. In 1989 when the two hospitals in Roanoke, Virginia made efforts to merge the United States attempted to block the merger by bringing suit under portions of both the Sherman Act and the Clayton Act. The court ruled in favor of Carilion Health System stating that although Carilion would gain a large portion of the market share in the merger, the court would not presume anticompetitive effects. Competitive pressure would remain within the market given the overflow capacity and outpatient alternatives of existing hospitals and clinics. Furthermore, the court found that the merger would result in large savings through increased efficiencies with regards to equipment and space (United States of America , v. Carilion Health Syste; Community Hospital of Roanoke Valley; Lewis-Gale Hospital, Inc,; Voluntary Hospitals of America, Inc,; American Medical Association, Amici Curiae., 1989). One of the most recent cases involving both a hospital system and an insurance company was the first of its kind since 1999 (Appleby, 2011). The United States and the State of Texas brought suit against United Regional Health System of Wichita Falls for entering into, perpetuating, or carrying out contracts with commercial health insurance companies the prevent those companies from entering into contracts with United Regional Health System competitors. This claim was filed under violations of the Sherman Act. United Regional Health System placed a stipulation in their contracts with health insurance providers that the insurance provider must reimburse for services at a rate increase of 13% to 27% if they choose to also contract with 7 competitors of United Regional Health System. Such an increase in reimbursement effectively creates a prohibitive expense for the contracting insurance companies and is not a commercially viable expense. The clauses prevented insurance providers from contracting with organizations that competed with United Regional Health System as United Regional Health System had approximately 90% of the market share for inpatient services and greater than 65% market share for outpatient services sold to commercial insurance providers (United States of America and State of Texas v. United Regional Health Care System, 2011). The actions perpetuated in each of the three cases are examples of concerns with regards to the formation of Accountable Care Organizations as providers will be working more closely together and sharing information and hospital systems and insurance companies will be gaining greater portions of the market share and therefore have more bargaining power. However, the Department of Justice and Federal Trade Commission will share responsibility in maintaining a competitive environment in healthcare and ensuring that antitrust regulations that apply to Accountable Care Organizations are enforced. Antitrust Regulations and Accountable Care Organizations As both the Federal Trade Commission and Department of Justice play roles in the enforcement of antitrust regulations in the healthcare sector, they will jointly oversee the enforcement of antitrust regulations in regards to Accountable Care Organizations and have issued guidelines and policy statements with regards to antitrust regulation enforcement (Commission, 2011). It should be known that the Federal Trade Commission is an independent commission lead by five appointees and, while it plays a role in antitrust in many sectors, does not have the power to bring criminal action against an entity or individual . The Department of 8 Justice on the other hand, is a branch of the executive government and does have the power to bring criminal actions (Pearlstein, In antitrust slugfest, consumers lose, 2011). Those applicants who meet the Centers for Medicare and Medicaid Services (CMS) application requirements for the Shared Savings Program will be evaluated by both the Department of Justice and Federal Trade Commission. Evaluations will be made based on information provided by CMS along with cost and utilization tools to evaluate the level of competition posed by the possible formation of a given Accountable Care Organization (Commission, FTC, DOJ Seek Public Comment on Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations, 2011). In order for an Accountable Care Organization to avoid an agency challenge as per se illegal, the Accountable Care Organization must oversee both its Medicare and private insurance populations with the same leadership and governance formations along with the same administrative and clinical actions (Competition, 2011). Those Accountable Care Organizations which meet the criteria will be analyzed by the Federal Trade Commission and Department of Justice based on “rule of reason” when their joint pricing activities are reviewed (Competition, 2011). The Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program provides nine safety zones that address mergers, high tech joint ventures, joint ventures involving specialized clinical or other expensive health care services, information sharing, information collection, price surveys, purchasing arrangements, physician network joint ventures, and multiprovider networks (Competition, 2011). In some situations the safety zones are different based on whether or not the participating provider or entity is exclusive or non-exclusive (Federal Trade Commission, 2011). Those Accountable Care Organizations that fall within the safety zones will not be 9 challenged by the Department of Justice or Federal Trade Commission for antitrust actions barring extraordinary circumstances. Eligibility for the safety zones is derived from the combined Primary Service Area shares of the providers in the Accountable Care Organization that administer a common service to enrollees from the same Primary Service Area (Competition, 2011). While Accountable Care Organizations are not required to seek mandatory antitrust review in order to integrate, both the Department of Justice and the Federal Trade Commission have committed to administer expedited reviews, which will take place in ninety days, for recently formed Accountable Care Organizations soliciting supplementary guidance. The ninety day review process begins once all documentation and information has been received by the department. The most likely applicants for the review process are the Accountable Care Organizations which incorporate healthcare providers that do not qualify for the safety zone (LaRose & Glazer, 2011). How to Avoid Breaching Antitrust Regulations Concerns arise with Accountable Care Organizations and possible antitrust actions in regards to collusion, such as price-fixing, among participants in the sale and provision of competing services that take place externally of the Accountable Care Organization. Such actions have the potential to reduce competition which has the potential to cause increased prices, a reduction in quality, and a reduction in availability of such services. Therefore, Accountable Care Organizations must make efforts to protect against collusion or conduct that with the potentiality to facilitate collusion among participants with services that compete externally of the Accountable Care Organization (Federal Trade Commission, 2011). 10 For Accountable Care Organizations with high Primary Service Area shares or other indicators of market power, there are four descriptions of conduct that have the potential to cause competitive concerns. The four conducts for high market power Accountable Care Organizations to avoid are as follows: 1. Contract clauses which avert private payers from advising patients to elect for treatment from certain provider, including those providers which do not a party to the Accountable Care Organization; 2. Linking the sale of services provided by the Accountable Care Organization to private payer consumption of auxiliary services; 3. Exclusive contracting with providers that attempts to avert those providers from entering into contracts outside of the Accountable Care Organization; 4. If cost, quality, efficiency, and performance metrics are similar to those performance measures utilized in the Shared Savings Program, and Accountable Care Organizations must not restrict the ability of a private payer to make such information available to health plan members. While the actions listed may be necessary and beneficial when an Accountable Care Organization does not hold a large portion of the market power, they are strong indicators of actions that may breach antitrust regulations (Federal Trade Commission, 2011). Conclusion The Patient Protection and Affordable Care Act has an overarching goal of increasing access to healthcare, decreasing costs, and increasing quality for which it calls for the formation of Accountable Care Organizations to form and participate in Medicare’s Shared Savings Program. With such a large increase in the amount of mergers and joint ventures taking place in 11 the field of healthcare there is an increased risk of violating antitrust regulations. Both the Department of Justice and the Federal Trade Commission have joined together to issue and enforce the Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program as well as all other applicable antitrust regulations. In order for healthcare administrators to avoid breaching antitrust regulations they must go through the approval process to become an Accountable Care Organization through CMS, should analyze if and where they fall under the safety zone protections, solicit additional aid through an expedited antitrust review, and avoid those actions listed as having the potentiality of indicating competitive concerns for those Accountable Care Organizations with large market power. Healthcare administrators must find an appropriate balance in endeavoring to meet the essential goals of the Patient Protection and Affordable Care Act while maintaining antitrust regulations. 12 Bibliography Appleby, J. 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