Accountable Care Organizations: Dilemma or Opportunity

The Affordable Care Act of 2010 encourages health care providers to form integrated organizations to jointly offer services in order to reduce costs and improve the quality of health care in the United States. Section 3022 of the Act provides for the formation of Accountable Care Organizations (“ACOs”) to serve fee-for-service Medicare beneficiaries through Medicare's Shared Savings Program (“SSP”). ACOs must sign up with the Department of Health and Human Services' Centers for Medicare and Medicaid Services (“CMS”) to participate in the program for at least three years.
ACOs are collaborations that integrate groups of providers, such as physicians (particularly primary care physicians), hospitals, and other health care providers around the ability to receive shared-savings bonuses from a payer by achieving measured quality targets and demonstrating real reductions in overall spending growth for a defined population of patients. The basic goal for ACOs is to improve the quality and lower the costs of health care by integrating health care delivery among independent providers. The integration process however, increases the possibility of price-fixing and other forms of illegal collusion in the health care community.

To avoid such a result, the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) (collectively “Agency” or “Agencies”) issued a Joint Statement (“Statement”) on March 31, 2011, outlining the Agencies' antitrust enforcement procedures for ACOs.

The Statement articulates a screening process in which the Agencies will evaluate an ACO's market power in each ACO participant's Primary Service Area (“PSA”). The PSA is defined as the lowest number of contiguous postal zip codes from which the participant draws at least 75 percent of its patients for that service. The higher the PSA share, the greater the risk the ACO will be anticompetitive.

The Statement sets up three levels of antitrust scrutiny for the screening process: ACOs with PSA shares of 30 percent or less fall within the safety zone and have no obligation to contact the Agencies; ACOs with PSA shares of higher than 50 percent will be subject to mandatory Agency review to be completed within 90 days; and ACOs with PSA shares of between 30 percent and 50 percent may voluntarily seek Agency review.

This screening process has attracted criticism and concerns. First, some believe that PSA test is not a reliable indicator of market share and the government should examine its usefulness via empirical studies before employing it as a screening tool. This criticism is valid because a random PSA (calculated based on zip code) may or may not be a relevant geographic market. The definition of a relevant geographic market is a fact-based inquiry. While the Agencies tried to create an efficient test, the blanket definition of the geographic market is flawed and may result in more harm than good.

Second, ACOs with less than 30 percent PSA shares fall within the safety zone at the time they are formed. However, two or more ACOs with less than 30 percent of a particular PSA may merge in the future and end up holding more than 50 percent of the PSA upon completion of the transaction. The Statement is quiet about treatment of these after-acquired or merged ACOs. In addition, these transactions may fall short of Hart-Scott-Rodino (“HSR”) merger reporting requirements. Therefore, anticompetitive ACO formations may slip through without an adequate review by the Agencies.

Third, in order to comply with the screening process, all ACOs must calculate their shares of a relevant PSA market. This is costly and burdensome and can create another hurdle that prevents smaller organizations and providers from forming an ACO in a quick and efficient manner. The Statement should also clarify the source of data used for the calculation of the shares for a relevant PSA.

Fourth, the 90 day review process has been criticized as being inadequate by those who call for giving the Agencies higher flexibility and more extensive review periods.

The Agencies accepted the submission of comments regarding the Statement until May 31, 2011 and will modify the Statement accordingly. Whatever the outcome, one thing is clear: forming an ACO can raise antitrust concerns and to ensure compliance with the Agencies' requirements, a detailed legal analysis of competition within a definable PSA must be conducted.

Parva Fattahi
(202) 589-1834
pfattahi@dbmlawgroup.com