April 2011 ACO Special Edition

Agencies Issue Antitrust Guidance for Medicare ACOs

By R. Brent Rawlings, McGuireWoods LLP, Richmond, VA

AuthorOn March 31, 2011, the same day that CMS issued a proposed rulemaking for implementation of the Medicare Shared Savings Program (the “MSSP”),1 the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) issued a Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (the “Proposed Statement”).2

The agencies recognized that healthcare providers are more likely to integrate care in an ACO for Medicare beneficiaries if they can also use the ACO for commercially insured patients and that such healthcare providers could benefit from greater certainty in evaluating whether an ACO could be subject to antitrust enforcement actions.3 To that end, the agencies determined that CMS’ eligibility criteria for ACOs are broadly consistent with the indicia of “clinical integration” as that term is understood in antitrust analysis and that if an ACO participating in the MSSP provides essentially the same services in the commercial market, CMS’ criteria are sufficiently rigorous to allow joint negotiations with private payors as well.4

While the Proposed Statement does clarify antitrust treatment of ACOs, the more favorable treatment that it affords does not reach ACOs that do not participate in the MSSP. There remains significant uncertainty for these ACOs, so traditional antitrust analysis for healthcare provider networks remains relevant notwithstanding these recent developments.

Opening the Doors for MSSP-Participating ACOs
Under the Proposed Statement, the agencies will provide more favorable “rule of reason” analysis to an ACO if, in its relationships with private payors, the ACO uses the same governance and leadership structure and same clinical and administrative processes to qualify for and participate in the MSSP.5

The focus of the Proposed Statement is on collaborations among otherwise independent providers under Section 1 of the Sherman Antitrust Act, which prohibits conspiracies that unreasonably restrain trade.6 The Proposed Statement does not address underlying antitrust issues under Section 2 of the Sherman Act, which prohibits monopolization.7 In other words, ACOs participating in the MSSP will still need to assess the horizontal effects of consolidation.

Safety Zone for MSSP-Participating ACOs
The Proposed Statement creates an antitrust “safety zone” for ACOs that participate in the MSSP and have a combined share of 30 percent or less of any common service among two or more ACO participants (e.g., physician groups) within a Primary Service Area (“PSA”).8 The agencies stated that, absent extraordinary circumstances, they will not challenge ACOs that fall within the safety zone.

The general principle underlying the safety zone is that, the lower the PSA share for any common service, the less the risk the ACO will be anticompetitive. The agencies will not regard an ACO that falls outside the safety zone as per se illegal but,, as the PSA share for any common service increases, so too does the risk the ACO will be anticompetitive.

Mandatory and Voluntary Review Process for MSSP-Participating ACOs
As required by CMS’ proposed regulations for the MSSP, the Proposed Statement provides that an ACO with a PSA share greater than 50 percent for any common service must first obtain agency review.9 There are two possible outcomes from the agency review: 1) that the reviewing agency has no present intent to challenge or recommend challenging the ACO, or 2) that the reviewing agency is likely to challenge or recommend challenging the ACO if it proceeds. If the second outcome results, the ACO would be prohibited from participating in the MSSP.10

For ACOs below the 50 percent threshold but outside of the safety zone, the ACO is not required to but may seek the same agency review process. In addition, the agencies have identified five types of conduct that an ACO can avoid to reduce the likelihood of an antitrust enforcement action .11 In short, prohibiting the named conduct is designed to prevent anti-competitive behaviors by ACOs.

Limitations on the Utility of the Proposed Statement
There are a number of limitations to reliance upon the Proposed Statement. For example:

  • Changes in an ACO’s network composition can change the ACO’s eligibility for the safety zone or trigger the requirement for mandatory review;
  • The Proposed Statement is inapplicable to an ACO that does not participate in the MSSP;12
  • The Proposed Statement only applies to ACOs formed after March 23, 2010;13
  • The Proposed Statement only applies for the duration of the ACO’s participation in the MSSP;14 and
  • In the event of termination of the ACO’s agreement with CMS, the ACO would lose any protection afforded by the Proposed Statement. The agreement with CMS is subject to termination for a number of reasons, many of which may fall outside the control of the ACO.15

Uncertainty Continues for Non-MSSP Participating ACOs
There are a number of different forms that an ACO could take, ranging from highly integrated to loosely affiliated structures. Examples of possible ACO structures include integrated delivery systems, multispecialty group practices, physician-hospital organizations, and independent practice associations.

Some integrated delivery systems may escape antitrust scrutiny through the decision in Copperweld Corp. v. Independence Tube Corp.,16 which held that a corporation, including a parent and its subsidiaries, cannot conspire with itself for purposes of Section 1 of the Sherman Act. But more “loosely affiliated” ACOs or “virtual” provider networks must demonstrate that they are sufficiently integrated, either financially or clinically, to create a legitimate arrangement for collective negotiations.17 A provider network that is not financially or clinically integrated will be subject to per se liability, meaning that its collective negotiations and fee agreements with payors will be presumed to be illegal under the antitrust laws.18 Financial integration may not be attainable for ACOs that are unwilling to accept capitation payment or other forms of substantial financial risk, and available guidance from the agencies demonstrates that achieving clinical integration is a significant undertaking. 19 Accordingly, antitrust laws remain a significant barrier for some developing ACOs that do not desire, or are not capable of, participation in the MSSP.


1 R. Brent Rawlings is an attorney with McGuireWoods LLP in Richmond, Virginia. His practice includes representation of hospitals and health systems, academic medical centers, physician groups, managed care plans, and other health care entities in a variety of matters including state and federal regulatory compliance; managed care contracting and operations; development of provider networks (IPAs, PHOs) and antitrust; Medicare, Medicaid and private payor regulation and fraud and abuse compliance; healthcare contracts; joint ventures; and merger, acquisition, and affiliation of healthcare providers. Mr. Rawlings may be contacted at rbrawlings@mcguirewoods.com or 804.775.1126.
2 Centers for Medicare & Medicaid Services, Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations and Medicare Program; Waiver Designs in Connection with the Medicare Shared Savings Program and the Innovation Center; Proposed Rule and Notice, 76 Fed. Reg. 67, 19528-19654 (April 7, 2011) (hereinafter referred to as “CMS Proposed Rule”).
3 U.S. Dep’t of Justice & Fed. Trade Comm’n, Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (2011) (“Proposed Statement”), available online at http://www.justice.gov/atr/public/guidelines/269155.pdf.
4 Id. at 2 and 5.
5 See Proposed Statement at 5.
6 Id. Under “rule of reason” analysis, the anti-competitive effects of collective negotiations are weighed against the pro-competitive efficiencies that result from concerted activities among provider network members (e.g., in the context of ACOs, cost savings and quality improvement).
7 15 U.S.C. § 1.
8 15 U.S.C. § 2.
9 Id. at 7 and 12. For physician services, whether there is a “common service” is determined by the primary specialty as designated for Medicare enrollment purposes. For inpatient hospitals, the PSA is determined by the Major Diagnostic Category for the services provided. The Proposed Statement adopts the CMS definition of primary service area for determining the PSA, which is the lowest number of contiguous postal zip codes from which the ACO participant draws at least 75 percent of its patients for that service
10 Id. at 8. The mandatory review requires the applicant to submit a variety of documents and information on the ACO and PSA calculations and is to be completed on an expedited basis within 90 days of submission of all such required documents and information. Certain rural ACO participants are excepted from this requirement.
11 See id.
12 Id. at 11. The five types of conduct are: preventing or discouraging commercial payors from directing or incentivizing patients to choose certain providers; tying sales (either explicitly or implicitly through pricing policies) of the ACO’s services to the commercial payor’s purchase of other services from providers outside the ACO (and vice versa); with an exception for primary care physicians, contracting with other ACO physician specialists, hospitals, ASCs or other providers on an exclusive basis; restricting a commercial payor’s ability to make available to its health plan enrollees cost, quality, efficiency, and performance information to aid enrollees in evaluating and selecting providers in the health plan, if that information is similar to the cost, quality, efficiency, and performance measures used in the Shared Savings Program; and sharing among the ACO’s provider participants competitively sensitive pricing or other data that they could use to set prices or other terms for services they provide outside the ACO.
13 Id. at 3.
14 Id. at 3.
15 Id. at 5.
16 Examples include failure to meet quality performance standards, changes in ACO leadership and management structure that result in an inability to perform required functions, the ACO’s assigned population falls below 5,000 for more than a performance year, and fewer than 50 percent of the ACO’s primary care physicians are not electronic health records “meaningful users” as defined by CMS.
17 467 U.S. 752 (1984).
18 U.S. Dep’t of Justice & Fed. Trade Comm’n, Statements of Enforcement Policy and Analytical Principals Relating to Healthcare and Antitrust (1996) (“1996 Statements”). The DOJ and FTC have recognized two antitrust “safety zones” for provider networks such that if all of the requirements are met, the agencies will not challenge their legitimacy, absent extraordinary circumstances.
19 Id. at 90-92.

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