To Dominate, or Not to Dominate, That Is the Dilemma, and It May Be the Undoing of Accountable Care Organizations (ACOs)

May 12, 2011 - The Patient Protection Affordability Act creates Accountable Care Organizations (ACOs). The intent of ACOs is to align physicians and hospitals into organizations with capped budgets to provide coordinated care of high quality to lower costs for Medicare patients by having doctors and hospitals “share” the savings engendered by new efficiencies.

So far, so good.

The dilemma is that efficient ACOs may become so powerful they will dominate a market and charge higher rates for Medicare patients, threby defeating the purpose of ACOS - to lower Medicare costs. This dilemma sets up a clash between the Federal Trade Commission (FTC), which regulates commerce, and the Department of Justice (DOJ), which creates the anti-trust rules to avoid monopolies. Suddenly government is in a clash all by itself.

This, in turn, means doctors and hospitals contemplating forming an ACO must hire consultants and anti-trust lawyers, who do not come cheaply, to make sure the prospective hospital and doctor partners do not violate rules and regulations involved in setting up an ACO and do not establish an organization with dominant market share.

Nowhere is this dilemma more sharply presented than in the Washington Report, a periodic newsletter written for The Physicians Foundation by Lee Stilwell, a former AMA lobbyist, who now has his own Inside-the-Beltway consulting firm.

Here in his May 11 Report, Stillwell brilliantly describes what’s involved, what’s likely to devolve, and what’s unresolved with ACOs. I have reprinted the full report in italics so physicians will not miss a beat about the inner workings of Washington.

“I have a message for physicians who are going to consider putting together an Accountable Care Organization (ACO): Plan on spending a ton of money on lawyers, accountants and other health care consultants!

This epiphany became apparent to me on Monday as I listened to more than two dozen individuals express concerns and make suggestions over a three-hour period on proposed antitrust policy for ACOs to be formed under the one-year old health care law.

The two panels –consisting of health care providers, insurers, academics, economists and health policy experts—spent their time trying to point out to representatives of the Federal Trade Commission (FTC) and Department of Justice (DOJ) that much work needs to be done to make potential ACO participants comfortable about potential legal anti-trust land mines that might lay ahead if they make the journey.

And, believe me, in my assessment, the current nine-page joint policy statement published in the April 19, 2011 Federal Register is going to have to grow by scores of pages to meet the uncertainty expressed by participants of the workshop.

As all of the 60-75 members of the audience and thousands of viewers who watched by webcam know, the devil is in the details when it comes to government verbiage. Consequently, although the material is dry as toast, everyone listened intently for responses from government representatives who appeared sympathetic to concerns and made it clear their role there was to listen and ask questions.

The majority of the comments focused on details of the federal government’s proposal to use the rule of reason for ACOs who use the same governance and leadership structure for their commercial and Medicare markets. The rule of reason analysis is designed to evaluate whether collaboration is likely to have substantial anticompetitive effects.

DOJ and FTC propose to undertake a streamlined analysis that calculates ACOs share of services in each participant’s Primary Service Area or PSA. The federal agencies conclude the risk of an ACO becoming anticompetitive grows as the share increases.

Panelists focused on fleshing out nebulous details for the three levels of antitrust scrutiny which are determined by PSA share:

--If an ACO’s PSA share is 30 percent or less, it is considered a “safety zone” because it is unlikely to have antitrust concerns. Consequently, no initial review is required. The “safety zone” exception also is applicable for providers in sparsely populated rural areas and may include a provider in the ACO with over 50 percent PSA share if no other participant provides the service in the area and the provider participates on a non-exclusive basis.

--A mandatory review is required if the ACO’s PSA is greater than 50 percent. The review-- to be completed in 90 days-- will be based on such things as documents that relate to competitors’ ability to compete with the ACO, providing contact information for commercial health plans or other payers, and plans and internal strategies.

--And then there is what I call the “twilight zone”—an ACO below 50 percent PSA share but more than 30 percent! An ACO may apply but remains subject to investigation if its formation appears anticompetitive!

Five types of conduct in the “twilight zone” are listed to avoid an antitrust investigation. These include preventing or discouraging commercial payers from directing patients to choose certain providers through “anti-steering,” “guaranteed inclusion,” “product participation,” “price parity,” or similar contractual clauses; tying sales of ACO’s services to the commercial payer’s purchase of other services from providers outside the ACO; with the exception for primary care physicians, contracting with other ACO physician specialists, hospitals, ASCs, or other providers on an exclusive basis; restricting a commercial payer’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; sharing among the ACO’s provider participants competitively sensitive pricing or other data they could use to set prices or other terms for services they provide outside the ACO.

If I were a “twilight zone” candidate, there is no doubt what I would do. My choice would be to avoid the quagmire of uncertainty by taking advantage of the DOJ-FTC offer to undertake also an expedited 90-day review for those in the 30-50 percent PSA share range.

The challenges of defining antitrust policy for ACOs were evident as different panelists explained the complexity of meeting proposed requirements. An AHA representative pointed out that a study of hospitals systems in 162 major cities showed virtually all would be required to undergo a “mandatory review.” Another panelist pointed out that that using the PSA, which focuses on contiguous postal zip codes, could be a big problem, pointing out there are more than 230 zip codes in metro Chicago alone.

The lack of definition brought more questions than answers. One panelist talked about the effectiveness of using a Tax Identification Number (TIN); wondered about a process to add new physicians entering the market and how to handle the breakup of practices during the three-year commitment period for establishing an ACO. Requiring an ACO participant to have a minimum threshold below 50 percent PSA share “of any service” was called “unrealistic” by a panelist.

A great deal of conversation focused on the expedited 90-day time period for reviews by DOJ and FTC.

There were a number of skeptics about the ability to do so much work in that time frame and the consequences of being forced to do it. What if more time is needed?

Speaking of time, there was no doubt the workshop could have gone on and on but ended on schedule with it certain that there is much to be challenged and thought through in a comment period that ends May 31, 2011. There is no definite date for release of the final antitrust policy but it is evident that federal officials have a great deal of tweaking and refinement to do.

For those who like to see government at work, I recommend a visit to the FTC website at www.ftc.gov/opp/workshops/aco2/index.shtml. There you can find all information about the workshop, including the complete Federal Register notice which was issued on April 19, 2011. Also, a full transcript of the workshop will be on the website toward the end of next week. On the FTC website, one also can pull up the agency’s earlier ACO workshop held in October 2010.

It becomes obvious to me that it is going to be hard to do all the detailed work required to bring clarity to the ACO program which is scheduled to get underway in January 2012. Keep in mind, the DOJ-FTC drama is just a small piece of the big federal pie when it comes to forming ACOs. The main thrust has been the massive proposed rule released by the Centers for Medicare and Medicaid Services (CMS) which has a comment period that ends June 6.

And if this wasn’t enough, the Internal Revenue Service (IRS) also issued a notice requesting comments regarding the need for guidance on participation by tax-exempt organizations in ACOs by May 31!

Do you see where this is going? As I said earlier, be prepared to hand that hired army of experts a set of rules and regulations that will be about the size of the telephone book.”

My Conclusion

No federal initiative to remake the health care system in its health reform law illustrates the complexity, longevity, and perplexity of government bureaucracy than the formation and implementation of ACOs, scheduled for kickoff in January 2012. No document tells you more about the Byzantine nature of the Patient Protection and Affordability Act than Lee Stillwell’s Washington Report to the Physicians Foundation.