Editor s Report. What s Inside

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August 2011 Vol. 24 /No. 5

Editor’s Report

In this summer edition of the Chronicle, we are pleased to offer three articles focused on one of the hottest (or, at least, most talked about) health care antitrust topics of the year: Accountable Care Organizations (ACOs).

In our lead article, John Carroll of King & Spalding LLP provides an

comprehensive overview and breaks down the recent DOJ/FTC proposed policy statement on ACOs. Mr. Carroll assesses the implications of the policy statement and offers his insight into the practical considerations for providers considering forming an ACO.

In our second article, Dionne Lomax and Sandeep Vaheesan of Vinson & Elkins LLP and Dr. Lona Fowdur and Dr. John Gale of Economists Inc. thoroughly examine the FTC’s recent workshop on ACOs. The authors walk through in detail the various issues discussed at the workshop and describe the views expressed by the numerous panelists and commentators in attendance.

In our third article, Christi Braun of Mintz Levin offers an interesting analysis of exclusivity and the issues it raises for ACOs. Specifically, Ms. Braun examines the practical implications, and potentially divergent goals, under the CMS’s proposed Medicare Shared Savings Program regulations and the antitrust laws as they pertain to exclusivity in ACOs.

We are always interested in hearing from our committee members. If there is a topic that you would like to see covered in an article or a committee program, please contact Seth Silber ([email protected]) or Christi Braun

([email protected]). If you are interested in writing an article for the Chronicle, please contact Jeff White ([email protected]).

Tracy Weir, Baker Donelson Washington, DC

Jeff White, Weil Gotshal Washington, DC

What’s Inside

Accountable Care Organizations: Examining the Proposed Department of Justice / Federal Trade Commission Policy Statement ...2 Report on FTC Workshop – “Another Dose of Competition: Accountable Care Organizations and Antitrust” ...9 Exclusivity and the Antitrust Issues It Raises for ACOs ...21

A Publication of the Health Care and Pharmaceuticals Committee of the Antitrust Section of the American Bar Association Co-Chairs: Seth Silber Wilson Sonsini Washington, DC Christi Braun Mintz Levin Washington, DC Editors: Tracy Weir Baker Donelson Washington, DC Jeff White Weil Gotshal Washington, DC

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Antitrust Health Care Chronicle August 2011

Accountable Care Organizations: Examining the

Proposed Department of Justice/Federal Trade

Commission Policy Statement

By John D. Carroll1

King & Spalding LLP

On March 31, 2011, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) (collectively, the “Agencies”) released for public comment the Proposed Statement of Antitrust

Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program,2 a joint policy statement explaining how the Agencies intend to enforce the antitrust laws with regard to newly formed accountable care organizations (ACOs). The Policy Statement accompanies the release on the same day by the Centers for Medicare and Medicaid Services (CMS) of its proposed regulations to cover ACOs

participating in the Medicare Shared Savings Program (SSP).3 The Policy Statement is the first healthcare pronouncement from the Agencies in several years and marks the first time since 1996 that the Agencies have published guidelines regarding clinical integration.

This article describes the Policy Statement’s analytical framework, as well as the process the Agencies have committed to using in reviewing

1

John Carroll is a senior associate in the Antitrust Practice Group of King & Spalding LLP.

2

76 Fed. Reg. 21,894 (April 19, 2011) [hereinafter, the “Policy Statement”].

3

The FTC’s press release regarding the Policy Statement is available at: http://www.ftc.gov/opa/2011/03/aco.shtm. The proposed CMS regulations are available at:

http://www.ofr.gov/OFRUpload/OFRData/2011-07880_PI.pdf). Comments are due by May 31, 2011.

ACOs. It then discusses the implications presented by the Policy Statement. Finally, the article provides practical considerations for providers considering forming an ACO to participate in the SSP.

Background

The Policy Statement is part of a larger antitrust framework regarding provider combinations. Specifically, mergers are evaluated under the FTC/DOJ Horizontal Merger Guidelines (Merger Guidelines),4 and other types of provider joint ventures (e.g., group purchasing organizations) are reviewed pursuant to the 1996 FTC/DOJ Statements of Antitrust Enforcement Policy in Health Care5 and the FTC/DOJ Competitor Collaboration Guidelines6 issued in 2000.

The Merger Guidelines involve an examination of product and geographic market definition,

4

U.S.DEP’T OF JUSTICE &FED.TRADE COMM’N, HORIZONTAL MERGER GUIDELINES (rev. ed. 2010),

available at

http://www.ftc.gov/os/2010/08/100819hmg.pdf.

5

U.S.DEP’T OF JUSTICE &FED.TRADE COMM’N, STATEMENTS OF ANTITRUST ENFORCEMENT POLICY IN

HEALTH CARE (1996) [hereinafter, the “Healthcare Statements”], available at

http://www.ftc.gov/bc/healthcare/industryguide/policy/ind ex.htm.

6

U.S.DEP’T OF JUSTICE &FED.TRADE COMM’N,

ANTITRUST GUIDELINES FOR COLLABORATIONS AMONG

COMPETITORS (2000), available at

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market structure, entry, and the merger’s competitive effects. Although the concepts articulated in the Merger Guidelines regarding market definition and competitive effects apply generally to joint ventures, how joint ventures are examined by the Agencies is less

straightforward.

The genesis of the Agencies’ framework regarding provider joint ventures was the Supreme Court’s Maricopa County Medical Society decision, which held that fee agreements among independent provider competitors “fit squarely into the horizontal price-fixing mold.”7 Thus, naked agreements on price between or among providers are considered per se illegal under Section 1 of the Sherman Act (Section 1).8 In the Healthcare Statements, the Agencies clarified that an integrated joint venture’s joint pricing policy is not a per se violation of Section 1.9 Such pricing policies are, instead, subject to the more relaxed Rule of Reason standard. The Agencies have recognized for decades that many types of integrated joint ventures are likely to benefit consumers. Their central concern is the type of restraint—typically joint contracting with managed care companies—in which the joint venture engages. The Agencies, however, take the position that provider joint ventures that involve substantial financial or clinical integration are subject to Rule of Reason treatment, provided they meet certain conditions.

What constitutes sufficient financial or clinical integration has been subject to significant debate, and the Agencies have been reluctant to

7

Arizona v. Maricopa County Med. Soc., 437 U.S. 332, 357 (1982).

8

15 U.S.C § 1.

9

U.S.DEP’T OF JUSTICE &FED.TRADE COMM’N, STATEMENTS OF ANTITRUST ENFORCEMENT POLICY IN

HEALTH CARE (1996).

provide much specificity. Instead, in addition to the general descriptions of integration and some hypothetical examples in the Healthcare

Statements, the Agencies publish advisory opinions (FTC) and business review letters (DOJ) that respond to proposals from parties to engage in certain activities.

With respect to financial integration, the Agencies take the position that providers must share substantial financial risk. The Agencies have indicated several ways in which providers may share substantial financial risk, including agreements for capitated compensation,

agreements to provide designated services for a pre-determined percentage of premium or revenue, and use by the venture of significant financial incentives for providers to achieve cost containment goals.10

Although the FTC has provided positive

advisory opinions regarding clinically integrated joint ventures,11 at least one Commissioner has expressed skepticism regarding clinical

integration alone as a justification for joint contracting. In 2007, current FTC

Commissioner Rosch stressed that the bar for clinical integration is high, noting that “the sagest and most realistic form of integration that a physician joint venture can undertake is meaningful financial integration.”12

10

Healthcare Statements, supra note 5, at Statements 8.A.4 and 9.A.

11

See, e.g., Letter from Markus H. Meier, Assistant Director, Bureau of Competition, FTC, to Christi J. Braun and John J. Miles (Sept. 17, 2007), available at

http://www.ftc.gov/bc/adops/gripa.pdf; Letter from Markus H. Meier, Assistant Director, Bureau of Competition, FTC, to Christi J. Braun (Apr. 13, 2009),

available at

http://www.ftc.gov/os/closings/staff/090413tristateaoletter .pdf.

12

J. Thomas Rosch, Clinical Integration in Antitrust:

Prospects for the Future, Remarks at American Health

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Nevertheless, through the Healthcare Statements and advisory opinions, the Agencies have

indicated that elements of sufficient clinical integration program include:

 Participation in active and ongoing programs to monitor and control

utilization of healthcare services, control costs, and assure quality of care;

 Interdependence among participating providers;

 Significant investment of capital, both monetary and human, in the necessary infrastructure and capability to realize the claimed efficiencies (e.g.,

implementing electronic medical records platform for all members); and

 Collaboration and cooperation among participating providers, resulting in lower costs and higher quality of

services provided through the network.13 Critically, any agreement concerning price or other terms or conditions of dealing entered into by or within the network must be reasonably necessary to obtain significant efficiencies through the network.14

For those financial risk-sharing joint ventures seeking some comfort, the Agencies have provided safety zones. Specifically, absent extraordinary circumstances, the Agencies will not challenge an exclusive physician financial

Health Law Section 2007 Antitrust in Health Care Conference (Sept. 17, 2007), available at

http://www.ftc.gov/speeches/rosch/070917clinic.pdf.

13

See Healthcare Statements, supra note 5, at Statement 8.B.1; see, e.g.,Letter from Jeffrey W. Brennan, Assistant Director, Bureau of Competition, FTC, to John J. Miles (Feb. 19, 2002), available at

http://www.ftc.gov/bc/adops/medsouth.shtm.

14

See Healthcare Statements, supra note 5, at Statement 8.B.2.

risk-sharing joint venture whose physician participants constitute 20 percent or less of the available physicians in each medical specialty in the relevant geographic market.15 Similarly, the Agencies will not challenge a non-exclusive physician financial risk-sharing joint venture whose physician participants constitute 30 percent or less of the available physicians in each medical specialty in the relevant geographic market.16

Framework

The Statement covers five areas: (1) the ACOs to which it will apply; (2) when the FTC and DOJ will apply particular antitrust analyses to those ACOs; (3) an antitrust safety zone for certain ACOs; (4) a mandatory antitrust review process for certain other ACOs; and (5) how the Agencies will review proposed ACOs that fall outside the safety zone but below the mandatory review threshold.

The Policy Statement applies only to ACOs formed after March 23, 2010 that are

collaborations among otherwise independent providers or provider groups that seek to

participate in the SSP. By extension, the Policy Statement does not apply to ACOs that are integrated physician practices or hospitals with their employed physicians. Because the Policy Statement only applies to collaborations, the Agencies’ central antitrust concern involves ACO’s joint contracting with commercial payors. The Statement recognizes that

“providers are more likely to integrate their care delivery for Medicare beneficiaries through ACOs if they can also use the ACOs for commercially insured patients.”17

15

Id. at Statement 8.A.1.

16

Id. at Statement 8.A.2.

17

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According to the Policy Statement, ACOs that use the same governance and leadership structure and the same clinical and

administrative processes they use to qualify for, and participate in, the SSP will involve

sufficient clinical integration to warrant analysis under the Rule of Reason by the Agencies. This is an important expansion upon the existing paradigm. First, the Agencies assume

integration incorporating the processes required for the SSP is sufficient integration for federal antitrust purposes. Second, by guaranteeing treatment under the Rule of Reason, the Agencies eliminate the parties’ need to

demonstrate that joint contracting is ancillary, or reasonably necessary, to achieving the

efficiencies of the joint venture.

The Policy Statement thus provides further guidance as to what indicia may constitute sufficient clinical integration, including: (1) a formal legal structure that allows the ACO to receive and distribute payments for shared savings; (2) a leadership and management structure that includes clinical and

administrative processes; (3) processes to promote evidence-based medicine and patient engagement; (4) collecting and reporting data on quality and cost measures; and (5) providing coordinated care for patients.

The key provisions of the Policy Statement concern whether the Agencies will conduct an antitrust review of an ACO and the types of facts and arguments the Agencies will consider as part of a review. Specifically, certain ACOs that would rarely be able to restrain competition may qualify for “safety zone” treatment,

meaning that the Agencies will not challenge the conduct of such ACOs, absent extraordinary circumstances. For an ACO to fall within the safety zone, the independent ACO participants must have a combined share of 30 percent or less of each common service in each

participant’s Primary Service Area (PSA), which is defined as “the lowest number of contiguous postal zip codes from which the ACO participant draws at least 75 percent of its patients.”18 In addition, any hospital or

ambulatory surgery center participating in the ACO must be non-exclusive for the ACO to be in the safety zone. There is an exception to the 30 percent ceiling for ACOs in rural counties. Specifically, a rural ACO may include one physician per specialty from each rural county on a non-exclusive basis, even if this inclusion causes the ACO’s share in that specialty to exceed 30 percent. Similarly, there is a dominant provider limitation, which allows an ACO to qualify for the safety zone, even if it includes a participant with a greater than 50 percent market share in a specialty in which there are no other providers. The caveat, however, is that the dominant provider must be a non-exclusive participant for the ACO to fall within the safety zone.

ACOs that have more than a 50 percent PSA share for any common service must undergo mandatory review by the one of the Agencies. Despite this requirement, these ACOs are not presumed unlawful. As part of their review, the DOJ or the FTC will analyze the potential for the ACO to exercise market power and the procompetitive effects of the ACO to ensure that the proposed ACO’s actions will be lawful under federal antitrust law. The Policy

Statement follows a rule of reason approach in its analysis of the ACOs. Specifically, it states:

When conducting a review . . . the Agencies will consider any information or alternative data suggesting that the PSA shares may not reflect the ACO’s likely market power, and also will consider any substantial

18

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competitive justification for why the ACO needs that proposed share to provide high-quality, cost-effective care to Medicare beneficiaries and patients in the commercial market.19 The Policy Statement describes how the parties can obtain an “expedited review” by submitting certain types of information and documents to the relevant Agency at least 90 days before the last day that CMS has stated it will accept ACO applications for the relevant calendar year. Depending on the ACO, the burden of the request, in terms of required submissions, will fall somewhere between a Hart-Scott-Rodino filing and a Second Request. Essentially, the Agencies call for information and documents relating to the formation of the ACO, the competitive landscape, and how the ACO will treat competitively-sensitive information.20 As part of this expedited review, the notified Agency will provide its opinion (i.e., whether the Agency will challenge the ACO if it

proceeds as represented in its documents) within 90 days of receiving all of the information from the parties.

For ACOs that fall between the safety zone and the mandatory review, the Policy Statement leaves it up to the parties to decide whether to contact the Agencies. For those ACOs seeking to limit their antitrust risk, the Agencies indicate that ACOs should avoid certain types of conduct that may raise competitive concerns. These types of conduct include the following:

 Preventing commercial payers from directing patients to choose certain providers;

 Tying sales of the ACO’s services to other providers’ services;

19

Id.

20

Id. at 21,898.

 Contracting on an exclusive basis for anyone other than primary care providers;

 Restricting a commercial payers’ ability to make available to its enrollees cost, quality, performance, and efficiency data; and

 Sharing competitively-sensitive

information among provider participants.

Implications

The Policy Statement is the first major healthcare policy pronouncement from the Agencies since 1996, and it is the first time the Agencies have affirmatively stated that an entire type of provider collaboration will be subject to rule of reason treatment if certain specific integration criteria are met. The Policy

Statement is, however, generally consistent with the antitrust framework under which the

Agencies have examined provider combinations.

One part of the Policy Statement that is

consistent with the Healthcare Statements is the somewhat paradoxical treatment of exclusivity. The Agencies consider exclusive relationships to be more likely to raise antitrust issues and, thus, both the Healthcare Statements and the Policy Statement treat exclusive joint ventures differently from non-exclusive ones. In the Healthcare Statements, the safety zone requires a lower market share of exclusive joint ventures than it does of non-exclusive networks, and, in the Policy Statement, certain providers are required to be non-exclusive, regardless of market share, in order for the ACO to fall within the safety zone. Yet, creating an exclusive network may be necessary to sufficiently incentivize physicians to participate in the program and to prevent free-riding. One of the key challenges in creating a successful clinical integration program is getting independent

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physicians to agree on, among other things, standard clinical protocols, and they may be unwilling to do so if they must continue to compete outside the ACO.

Although the Policy Statement is technically limited to ACOs, it will likely have ripple effects into other types of provider joint ventures. First, providers may argue that, although a proposed joint venture does not technically constitute an ACO according to the Policy Statement, it nonetheless involves an analogous kind of clinical integration and thus any joint contracting should be presumed by the Agencies to be ancillary to furthering the

efficiencies of the network. Second, providers undergoing FTC or DOJ review may point to the expedited review process and expect the agency to agree to similar timing or to certain limitations regarding information requests. Finally, the issuance of the Policy Statement reflects a multi-agency approach and marks a return by DOJ to healthcare provider

enforcement. Prior to this, the FTC has been almost the exclusive Agency investigating provider networks. For this reason, FTC Commissioner J. Thomas Rosch dissented, citing DOJ’s “far less expertise or experience” and greater susceptibility “to lobbying and other political pressure.”21 Unfortunately, as is the case with U.S. antitrust enforcement generally, it is far from clear how the Agencies will allocate jurisdiction.

Practical Considerations

For providers considering forming an ACO, absent extraordinary circumstances, antitrust issues should not determine the type of

21

J. Thomas Rosch, Statement of J. Thomas Rosch

Respecting Proposed Regulations Implementing the Affordable Care Act (Mar. 3, 2011), available at

http://www.ftc.gov/speeches/rosch/110303acostatement.p df.

combination. There is no “magic structure” that permits providers to get together without

triggering a challenge by the Agencies. Instead, business and clinical considerations should drive the process. These considerations would primarily involve figuring out whether, and under what circumstances, physicians would be interested working together to make an ACO or other type of joint venture successful. For hospitals, a merger or acquisition may be more appealing than forming an ACO, due to the immediate capital and cash infusions and level of control the buyer may exercise.

As with any provider combination, reaction from managed care companies is critical. Thus, if a main reason for forming an ACO is to band together and attain higher reimbursement rates from commercial payors, the ACO will

probably trigger substantial review—if not a challenge—from an Agency, especially if its market share in any practice is above 50

percent. If, however, the providers are forming the ACO to reduce costs and demonstrate efficiencies, and managed care companies consider these benefits to be cognizable, then the Agencies will not likely have serious concerns.

Although the Joint Policy Statement sets forth a framework for optional antitrust review, ACOs with 30 to 50 percent market share should consider whether such review offers any meaningful benefits, especially when weighed against the intrusiveness of the Agency’s review, the likely requirement to produce significant volumes of data and documents, and the limited value of a non-binding statement that the Agency will not challenge a proposed ACO. Although the Policy Statement predicts that an expedited review will not impose substantial labor costs on providers, the estimates of $13,800-$23,000 are, at best, highly aspirational, given the type and amount of

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information that would likely be requested. In many cases, such middle-range ACOs can hope to achieve the same reassurance simply by following the Policy Statement and adopting in the commercial market the processes required for participation in the Shared Savings Program. Finally, providers should create a

comprehensive antitrust plan in considering and forming an ACO. Such a plan should involve several considerations. First, providers should consider how possible participants in ACOs can both safeguard their competitively-sensitive information from competitors and share it to evaluate the possible antitrust exposure for the ACO. Second, providers should assess the antitrust risk. To do this, providers should determine how they can efficiently identify their PSA and calculate their PSA share in shared services and their participants’ individual PSA shares in unique services.

Conclusion

At bottom, the Agencies understand that ACOs have significant potential to generate pro-competitive benefits, but the Agencies remain concerned about the potential anticompetitive effects of provider combinations that involve high market shares. Despite the fact that a key aspect of Healthcare Reform involves furthering efficiencies through provider collaboration, the Agencies—particularly the FTC—remain focused on whether such combinations will result in ACOs having the ability to raise prices to managed care companies. What remains to be seen is whether providers will create an ACO and take advantage of the guidance from the Agencies, especially if the ACO would be subject to mandatory review, given the risks and substantial costs associated with DOJ or FTC scrutiny.