December 2011 ACO Special Edition

Agencies Issue Final Antitrust Guidance for Medicare ACOs

By R. Brent Rawlings, McGuireWoods LLP, Richmond, VA1

AuthorOn October 20, 2011, the same day that The Centers for Medicare & Medicaid Services (“CMS”) issued a final rule for implementation of the Medicare Shared Savings Program (“MSSP”),2 the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) (“Agencies”) issued a Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Saving Program (“Final Statement”).3 The Final Statement is substantially similar to the proposed statement the Agencies issued on March 31, 2011 (“Proposed Statement”),4 but there are some key differences that are discussed in this article.

The Agencies received 127 comments in the sixty day public comment period following issuance of the Proposed Statement.5 Many of these letters called for more sweeping changes to the application of federal antitrust laws, but the concessions made by the Agencies in response are limited to procedural as opposed to substantive matters of antitrust review. Overall, the Final Statement eliminates some of the burden associated with demonstrating compliance, but the antitrust analysis itself remains largely unchanged. Furthermore, while the Final Statement, like the Proposed Statement, is helpful in clarifying antitrust review of accountable care organizations (“ACOs”), its scope is limited to ACOs that participate in the MSSP. As discussed in further detail below, there remains significant uncertainty for those ACOs not participating in the MSSP and traditional antitrust analysis for healthcare provider networks remains relevant notwithstanding this agency guidance.

Key Differences Between Proposed and Final Statements

The Proposed Statement included the following features for ACOs participating in the MSSP:

  1. “Rule of reason” analysis;
  2. An antitrust “safety zone”;
  3. Guidance to ACOs on how to reduce the likelihood of an antitrust enforcement action when falling outside the safety zone;
  4. Mandatory agency review of ACOs with a combined share of 50 percent or more of common services in the ACO’s Primary Service Area (“PSA”);
  5. Application limited to ACOs formed after March 23, 2010.

The Final Statement maintains these key features with the following exceptions:

  1. The Final Statement now applies to all ACOs participating in the MSSP, not just those formed after March 23, 2010.6 Accordingly, a collaboration of otherwise independent providers - such as an Independent Practice Association (“IPA”) or Physician Hospital Organization (“PHO”) - in existence before March 23, 2010, and participating in the MSSP, can rely on the Final Statement to establish antitrust compliance;
  2. There is no longer mandatory agency review.7 No ACO will be required to complete an agency review as a prerequisite to participation in the MSSP. Newly-formed ACOs, however, can obtain voluntary expedited antitrust review.8

Rule of Reason Analysis Still Applies

The Agencies will continue to apply “rule of reason” analysis to ACOs participating in the MSSP because the agencies recognize that organizations meeting the MSSP eligibility requirements are likely to be bona fide arrangements intended to improve healthcare quality and costs through collaboration.9 Under rule of reason analysis, anti-competitive effects of collective negotiations are weighed against pro-competitive efficiencies that result from concerted activities among provider network members (e.g., cost savings and quality improvement). This is critical because, outside of rule of reason analysis, collaborations of otherwise independent providers, such as collective negotiations and fee agreements, are per se illegal under the antitrust laws.

The Agencies further state that they will also apply rule of reason analysis to an MSSP-participating ACO’s joint negotiations with commercial payors, so long as the same governance and leadership structures and clinical and administrative processes used in the MSSP are used to serve patients in commercial markets.10 As with the Proposed Statement, the Final Statement does not address underlying antitrust issues under Section 2 of the Sherman Act, which prohibits monopolization.11 ACOs participating in the MSSP will still need to assess the horizontal effects of consolidation.

Safety Zone Still Available

The Agencies have finalized the antitrust "safety zone" for ACOs participating in the MSSP with a combined share of 30 percent or less of any common service among two or more ACO participants (e.g., physician groups) within a PSA, which was included in the Proposed Statement.12 The Agencies will not challenge ACOs in the safety zone, absent extraordinary circumstances.

The Agencies will apply the CMS definition of 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. For physician services, a "common service" is determined by the primary specialty designated for Medicare enrollment purposes. The PSA for outpatient facilities is determined by CMS-defined outpatient categories. The PSA for inpatient hospitals is determined by Major Diagnostic Category. In addition, each inpatient hospital will have a separate PSA for its inpatient services, outpatient services, and physician services provided by its physician employees, if any.13

Depending on the situation, if an ACO participant is exclusive to the ACO and not permitted to contract with payors through other entities, the safety zone may not be available. Hospitals and ambulatory surgery centers must be non-exclusive to the ACO for it to fall within the safety zone. Availability of the safety zone does not differ based on whether physicians are exclusive or non-exclusive, except when the rural or dominant provider exception applies.14

Conduct to Avoid Outside the Safety Zone

An ACO outside the safety zone is not per se illegal, but as the PSA share for any common service increases, so does the risk of antitrust enforcement.15 The Agencies identify five types of conduct to avoid or reduce the likelihood of antitrust enforcement action:

  1. Sharing competitively sensitive data among the ACO's participants that could be used to set prices or other terms for services provided outside the ACO;
  2. Preventing or discouraging commercial payors from directing or incentivizing patients to choose certain providers;
  3. Tying sales – explicitly or through pricing policies – of the ACO's services to a commercial payor's purchase of other services from providers outside the ACO (and vice versa);
  4. Contracting on an exclusive basis with ACO physicians, hospitals, ambulatory surgery centers, or other providers; and
  5. Restricting a commercial payor's ability to provide cost, quality, efficiency, and performance information to its enrollees to aid in evaluating and selecting providers in the health plan, if the information is similar to measures used in the MSSP.16

Voluntary Expedited Review for “Newly Formed” ACOs

The Agencies have eliminated the requirement for mandatory antitrust review for ACOs with a combined share of 50 percent or more of common services in the ACO’s PSA. The Final Statement, however, establishes that newly formed ACOs - those that, as of March 23, 2010, had not yet signed or jointly negotiated any contracts with commercial payors and have not yet participated in the MSSP - can voluntarily request a 90-day antitrust review by the Agencies.17

After the review, the Agencies will advise the ACO whether its formation or operation raises competitive concerns and, if so, may condition approval on a written agreement with the Agencies specifying steps to remedy those concerns. Both the request for review and the Agencies’ response will be made public.

Even though there is no mandatory antitrust review, the Agencies and CMS made clear that they will actively monitor ACOs through data provided by CMS and may investigate and take enforcement action against an ACO at any time, even after a review has been obtained.18

Limitations of the Final Statement

The Final Statement clarifies antitrust treatment of ACOs participating in the MSSP, but concerns about antitrust enforcement actions for ACOs is not eliminated because:

  • Changes in an ACO's network composition can remove it from the safety zone, increasing the likelihood of antitrust action;
  • The Final Statement only applies to ACOs that currently participate in the MSSP with a valid MSSP agreement with CMS;
  • ACO agreements with CMS are subject to termination for a variety of reasons, not all of which are under an entity's direct control, and a loss of MSSP participation status means a loss of some of the protections afforded by the Final Statement.

Under these circumstances, an ACO may need to rely on some basis other than the Final Statement to avoid antitrust enforcement. This will be especially challenging for "loosely affiliated" or "virtual" provider networks that are not single-entity ACOs.

Some integrated delivery systems may escape antitrust scrutiny through the decision in Copperweld Corp. v. Independence Tube Corp.,19 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 composed of multiple, unrelated legal entities that combine for purposes of delivering healthcare services, such as an IPA or PHO, must demonstrate that they are sufficiently integrated, either financially or clinically, in order to create a legitimate arrangement for collective negotiations.20

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 health plans and other purchasers will be presumed to be automatically illegal under the antitrust laws, without evaluating any pro-competitive effects of its actions.21 Accordingly, traditional antitrust analysis of provider networks remains highly relevant for developing ACOs, particularly those that do not desire, or are not capable of, participation in the MSSP.

In evaluating whether a provider network is “financially integrated,” the Agencies look at whether the members of the provider network share “substantial financial risk.” Examples of shared substantial financial risk recognized by the Agencies include capitation payment, percent of premium payment, withholds to achieve cost containment goals, cost or utilization targets subject to subsequent substantial awards or penalties, and case or global payment rates. The key concept is that economic risk must be shared among all members of the provider network. The DOJ and FTC have recognized two antitrust “safety zones” for provider networks that share substantial financial risk, such that if all of the requirements are met, the Agencies will not challenge, absent extraordinary circumstances.22

At this time, it is not clear whether the Agencies would view participation in the MSSP or any similar program with commercial payors as sharing of substantial financial risk.

The Agencies’ test for what constitutes sufficient “clinical integration” has been developed through agency guidance and enforcement actions over the past several years.23 This guidance demonstrates that clinical integration requires much more than simply establishing a legal entity and contractual relationships among individual participants:

  • The provider network must be clinically integrated in substance, not just form, and individual participants in the network must be held truly accountable for adhering to the practice standards and protocols that are adopted;
  • There must be a significant investment of capital to develop an information system infrastructure and individual participants will be expected to share in this investment;
  • The provider network must achieve its predicted efficiencies from clinical integration. Where an ACO fails to achieve the cost savings and quality improvement predicted from clinical integration, it could trigger investigation by the Agencies and possibly per se liability under the antitrust laws.

In the Final Statement, the Agencies recognized that CMS’s eligibility criteria for the MSSP are broadly consistent with the indicia of clinical integration and this formed the basis for establishing the safety zone and related antitrust analysis included in the Final Statement, but an ACO not participating in the MSSP would have to independently establish that it is clinically integrated and could not necessarily rely upon the Final Statement in this regard due to its limited scope.


The Final Statement helps to clarify the Agencies’ view of the application of antitrust laws to ACOs participating in the MSSP and the recent modifications help to simplify some of the procedural aspects of this analysis. But ACOs that do not participate in the MSSP will continue to be bound by more traditional antitrust analysis. Outside of the Copperweld doctrine it appears that the Agencies’ statements on provider networks and indicia of clinical integration that has been developed over the past several years will be the most likely starting point for many ACOs considering how to structure their organizations and operations to comply with antitrust laws.


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 healthcare organizations in a variety of matters including state and federal regulatory compliance; managed care contracting and operations; development of provider networks; 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 or 804.775.1126.


Centers for Medicare & Medicaid Services, Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations; Final Rule, 76 Fed. Reg. 67802 (November 2, 2011). Available online at


U.S. Dep’t of Justice & Fed. Trade Comm’n, Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (2011), 76 Fed. Reg. 67026 (Oct. 28, 2011), available online at (the “Final Statement”).


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), 76 Fed. Reg. 21894 (April 19, 2011), available online at




Id. at 67026.




Id. at 67030.


Id. at 67027.


Id. at 67028.


15 U.S.C. § 2.


Final Statement at 67028.


Id. at 67031.


Id. at 67028-29. The rural exception allows an ACO with a 30% or more PSA share to remain in the safety zone if only one physician or physician group per specialty in each county with an “isolated rural” or “other small rural” zip code on a non-exclusive basis is included in the ACO, even if including these physicians or physician groups causes the ACO to exceed a 30% PSA share. The dominant participant exception allows an ACO to remain within the safety zone if it includes an ACO participant with a greater than 50% PSA share that provides services that no other ACO participant in the PSA provides. The dominant provider must be non-exclusive and the ACO cannot require a commercial payor to contract exclusively with the ACO or otherwise restrict a payor’s ability to contract with other ACOs.


Id. at 67029.


Id. at 67029-30.


Id. at 67030.


Id. at 67026 and 67031.


467 U.S. 752 (1984).


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.


1996 Statements at 90-92.



1996 Statements.


1996 Statements, Statement 8, para. (10)(C).

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