ACOs must steer clear of anti-trust issues

What’s the problem?

Accountable Care Organizations (ACOs) involve the creation of new entities that are intended to improve quality and efficiency of care.  But, experts in economics and anti-trust law worry that ACOs can have the unintended effect of reducing competition among health care providers, creating local monopolies that can drive up prices.

In a recent commentary in the Journal of the American Medical Association (JAMA), Duke faculty members Barak Richman, JD, PhD and Kevin Schulman, MD argue that providers forming ACOs are emphasizing horizontal integration of formerly-competing entities to increase market power and generate monopoly profits in the privately-insured health care market, rather than focusing on vertical integration of complementary entities to generate performance-driven savings in the publically-insured Medicare market.  They explain that monopolies are even more problematic in the health care market than in other markets because private health insurers insulate consumers from directly facing unreasonable monopoly prices, hiding those high prices behind increasing insurance premiums.  I would argue that such prices are even more obscured from consumers when they take the form of slower salary growth offered by employers shifting compensation dollars to cover increasing health insurance costs.  Health plans face regulations and other barriers that limit their ability to refuse to pay these higher prices, even if the price exceeds the value received by their members.

Who is the enforcer?

The Patient Protection and Affordable Care Act of 2010 (PPACA), the health care reform law that features ACO gain sharing provisions for Medicare, does not exempt health care providers from anti-trust laws or oversight by the government authorities responsible for enforcing those laws.  As explained in a recent article in the New York Times, two government authorities share anti-trust enforcement responsibilities: the Federal Trade Commission (FTC) and the Justice Department.  In recent years, the FTC has taken the lead in reviewing proposed joint ventures of hospitals and physician organizations to examine whether the benefit to consumers from efficiency gains exceed the harms to market competition.  The FTC has expressed concerns about the potential anti-competitive effects of ACOs, and is thought to be less empathetic to ACO’s arguments about the value of ACOs to achieve care process transformation and associated quality and efficiency gains.  The Justice Department, in contrast, is thought to be more enthusiastic about ACOs and more vested in the success of ACOs and the PPACA in general.  The two government entities appear to be engaged in a debate about turf and approach.

What can the government do to avoid health care monopolies without inhibiting health care transformation?

First, the government can clearly communicate standards, processes, and the responsibilities of the government entities involved, including the FTC, the Justice Department, and CMS.  Apparently, the agencies are working to create such a document, but the debates have delayed its completion and release.

Second, the government can make sure that the process is expeditious and not overly burdensome on health care providers.  The FTC’s reviews of joint ventures of hospitals and physician organizations have historically taken a year and required expensive analysis and documentation.  These reviews need to be streamlined.

In addition to federal anti-trust oversight, states have the option of implementing price controls to curb excessive monopoly pricing.  According to Richman and Schulman, some states were successful in using rate caps during the 1970s and 1980s.  But, such anti-market approaches are likely to be politically unpalatable, and should be reserved for the scenario where other oversight approaches fail, or for rural areas where small population density cannot support multiple competing ACOs.

What can ACOs do to steer clear of anti-trust issues?

I’m no lawyer, so the following is clearly not legal advice.  But, in my opinion, ACOs should be centered around primary care physicians and the defined populations of patients with whom they have care relationships.  And, they should have a sincere primary focus on making investments in patient-centered care process transformation that are obviously beneficial to “consumers.”  If ACOs are centered around hospital facilities, and if they lack credibility in the investments they are making in care coordination, disease management, quality improvement and other care process improvement initiatives, anti-trust enforcement officials are going to be less likely to conclude that the efficiency gains exceed the harms to market competition.

Second, be leary of ACO structures that involve 100% of the providers or facilities of any type in a local market, particularly in markets that have a large enough population to support competing providers.

Finally, and most importantly, get quantitative about quality and efficiency benefits.  Be ready in advance of launching an ACO with prospective models, based on explicitly stated, reasonable assumptions, showing that the investments and process changes that are planned can plausibly be expected to achieve substantial improvements in quality and reductions in cost compared to trend.  Then, be ready with the database, epidemiology expertise and analytics to support population-based, risk-adjusted metrics to prove that the planned quality and efficiency gains are actually being achieved in the expected time frame.  Those prospective models and retrospective evaluations should apply not only to the Medicare population, but also to privately insured and uninsured populations.   Nothing is likely to be as convincing to anti-trust enforcers than valid measures of quality and efficiency benefits that accrue to consumers.

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