ACOs and Anti-Trust

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Mike Cassidy

By Mike Cassidy

In last month’s post entitled “Reform Redux,” I mentioned that one of the foremost issues for the coming year would be the development of Accountable Care Organizations (ACOs).  The two most troublesome issues in developing ACOs will probably be the Anti-Trust and the Anti-Kickback/Stark issues.  Traditionally, this regulatory structure has made it almost impossible for multiple providers to agree in any joint venture to provide health care services:

  • The Anti-Trust laws basically prohibit agreements (affectionately known as conspiracies) among competitors to fix prices, which is evident by the many enforcement actions taken against IPAs, PHOs, etc.
  • The combination of the Stark law prohibiting referrals to entities with which physicians have financial relationships, the Anti-Kickback statutes prohibiting payment in exchange for referrals, and the Civil Money Penalties statute prohibiting incentives to withhold care, basically eliminate any meaningful opportunities to operate as anything other than an integrated delivery system, which operates as a single entity.

After the publication of Reform Redux, CMS, DOJ/FTC, the IRS and the OIG all issued proposed regulations intended to stimulate and legitimize ACOs.  The legal issue will be whether the ACO regulations go far enough to make ACOs theoretically a competitive opportunity, and the practical issue will be whether the organizations permitted by these relaxed regulations will be sufficiently viable to compete with existing integrated delivery systems.

For purposes of this post, we will concentrate on the Anti-Trust issues and leave the Anti-Kickback issues for another day.  The policy statements, available either from the FTC/DOJ websites or at www.medlawblog.com, explain that the proposed regulations create safety zones for ACOs with market shares of less than 30%, and then provide a process for ACOs with market shares falling between 30% and 50% to qualify for some type of lesser scrutiny.

However, the organized insurance industry has already been lobbying for enforcement that would restrict the market shares of ACOs.  A recent study by the Center for American Progress (http://www.americanprogress.org/issues/2009/06/pdf/health_competitiveness.pdf) listed the insurance market shares for various states.  In more than half the states, one insurance company had more than half the market.  In none of the states, except New York, did the top two insurers have less than 50% of the market; the shares were routinely in the 60%, 70% and 80%, and in some cases the combined market share was in the 90%.  Interestingly, the data for Pennsylvania was unavailable, but those of you familiar with the relative market shares of the Blues and UPMC should be able to guess where that combined market share stands.

A similar issue is going to arise with respect to the market shares of integrated delivery systems, and the practical question is whether any new player will be sufficiently large enough to drive any economies of scale.  The ACO regulations establish a threshold of 5,000 covered lives in order to form an ACO, but 5,000 covered lives is no larger than a good sized medical practice.  It is debatable whether any entity that small will have the resources necessary to establish a “new ACO” and garner sufficient Medicare cost sharing even to pay the expenses of creating the organization.  The ACO concept in markets dominated by one or just a few integrated delivery systems may be nothing more than a structure that pays even more money to the big systems.  In a revenue neutral scheme, paying more money to the big system simply means that the smaller players get less money, which is probably not what the health care reformers had in mind.

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