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Federal Antitrust Policy and Accountable Care Organizations

The Department of Justice and the Federal Trade Commission (the “Agencies”) have long asserted that “competition is one of the strongest motivations for firms to lower prices, reduce costs, and provide higher quality.” Passage in 2010 of the Patient Protection and Affordable Care Act (Affordable Care Act) required the Agencies to articulate an antitrust policy that supports the Shared Savings Program of CMS without abandoning their traditional commitment to competition. In December of 2010 a representative of the Antitrust Division assured a Senate subcommittee that the “Department believes that antitrust should not be an impediment to legitimate clinical integration and is focused on addressing the concerns of those contemplating the formation of beneficial ACOs.” [1]

The Agencies first attempted to address those concerns in March of 2011 when they issued their Joint Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (JPPS). The JPPS addressed five issues: 1) which ACOs would be covered by the policy; 2) how the Agencies would analyze potential threats to competition posed by ACOs; 3) how ACOs could qualify for an antitrust safety zone; 4) which ACOs would need to obtain antitrust clearance from the Agencies, and 5) how ACOs that were not required to obtain antitrust clearance but did not qualify for a safety zone could obtain greater antitrust clarity, including an expedited review by one of the Agencies. For a variety of reasons the JPPS did little to relieve the antitrust concerns of most interested parties.

On October 20, 2011, the Agencies issued their final Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (Policy Statement). The Policy Statement covers the same issues, but contains two major changes. First, the scope of the Policy Statement is not limited to ACOs created after passage of the Affordable Care Act. Second, no ACO applicant is required to obtain antitrust clearance from the Agencies as a condition for entry into the Shared Savings Program.  How these changes will affect the antitrust concerns of ACO applicants remains to be seen.

Applicability of the Policy Statement 

The JPPS had limited its applicability to “collaborations among otherwise independent providers and provider groups, formed after March 23, 2010, that seek to participate, or have otherwise been approved to participate, in the Shared Savings Program.”[2] The term “collaboration” previously has been defined as “a set of agreements, other than merger agreements, among otherwise independent entities jointly to engage in economic activity, and the resulting economic activity.”[3] The Agencies refer in the Policy Statement to all such “collaborations” as ACOs, and to their constituent providers and provider groups as “ACO participants,” regardless of their approval status in the Shared Savings Program.[4]

The Agencies deleted any reference in the Policy Statement to a starting date and expanded its coverage to all “collaborations among otherwise independent providers and provider groups that are eligible and intend, or have been approved, to participate in the Shared Savings Program.”[5] In simple terms, therefore, the Policy Statement applies to any set of non-merger agreements among otherwise independent entities for the purpose of engaging in joint economic activity and participating in the CMS Shared Savings Program. Merger agreements remain subject to antitrust evaluation under the Agencies’ revised Horizontal Merger Guidelines.[6] The analytical principles underlying the Policy Statement also “apply to any ACO initiatives undertaken by the Innovation Center within CMS so long as those ACOs are substantially clinically or financially integrated.”[7]

Applicability of Rule of Reason Antitrust Analysis

Courts routinely condemn agreements among competitors to set prices or allocate territories as being unreasonably anticompetitive and, therefore, per se violations of the antitrust laws.[8] The per se designation constitutes a legal presumption that the anticompetitive effects of such agreements always outweigh potential benefits, thus rendering analysis of individual facts and proposed justifications unnecessary.  Agreements among competitors that are not condemned outright as per se antitrust violations – such as merger and joint venture agreements – are evaluated based on facts specific to the affected parties and markets to determine the reasonableness of any resulting reduction in competition. The standard used in making such individual determinations is called the “rule of reason.”

In their 1996 Statements of Antitrust Enforcement Policy in Health Care, the Agencies identified specific criteria that proponents of multiprovider network agreements must meet to merit rule of reason evaluation rather than per se condemnation. In summary, proponents of such agreements must demonstrate that their proposed combinations are likely to produce significant efficiencies which benefit consumers, and that any resulting price or market allocation agreements are reasonably necessary to achieve those efficiencies.[9] Agreements that require participants to share substantial financial risk generally meet those requirements because they establish efficiency goals as well as provide performance incentives. [10] Agreements that do not require financial risk sharing must provide for “meaningful clinical integration” sufficient to produce significant performance efficiencies.[11] Meaningful clinical integration includes programs that evaluate and modify when necessary the practice patterns of provider participants, as well as programs that control costs and ensure quality by promoting interdependence and cooperation among providers.[12]

The Agencies confirm in their Policy Statement that the ACO eligibility criteria established by CMS are consistent with the criteria specified in the 1996 Statements for rule of reason treatment of multiprovider agreements. The Agencies further concede that organizations which meet the eligibility requirements of the Shared Savings Program are “reasonably likely” to produce the benefits of higher quality and lower cost health care services for consumers. Finally, the Agencies note that CMS will monitor and evaluate the performance of approved ACOs, thereby providing an additional safeguard against unreasonable anticompetitive conduct.  These findings, the Agencies explain, support their decision in the Policy Statement to treat “joint negotiations with private payers as reasonably necessary to an ACO’s primary purpose of improving health care delivery.”[13] Accordingly, the Agencies will provide rule of reason consideration to any ACO that participates in the Shared Savings Program and uses the same organizational structures as well as clinical and administrative processes to serve patients in the general commercial market.

Antitrust Safety Zone Criteria.

The Policy Statement defines an antitrust safety zone for ACOs that satisfy the criteria established by CMS for participation in the Shared Savings Program. Meeting the safety zone criteria, however, provides no antitrust immunity. At most, ACOs that meet the safety zone criteria are deemed to present little competitive threat and, therefore, are highly unlikely to receive an antitrust challenge from the Agencies.

The process for determining safety zone eligibility requires calculating an ACO’s share of services in the Primary Service Area (PSA) of each participant in that ACO. This is a multi-step process. Step one requires the identification of all services furnished by each participant in the ACO. Physician services correspond to the primary specialties designated on each physician’s Medicare Enrollment Application as identified by its Medicare Specialty Code (MSC). Services for inpatient facilities correspond to the CMS Major Diagnostic Codes (MDC), and services for outpatient facilities will correspond to CMS defined categories. In step two, those services that are provided by at least two independent participants in the ACO are identified. These are the ACO’s “common services.” Step three requires the assignment of a PSA to each participant in the ACO that provides a common service. A PSA is the lowest number of contiguous postal zip codes from which the common service participant draws at least seventy five percent of its patients for that service.

Calculation of the ACO’s percentage share of each common service in each PSA occurs in step four. This is done by determining the total volume of common services provided by all ACO participants in a given PSA during the most recent calendar year for which data are available and dividing that number by the total volume of services provided by all providers – not just ACO participants – in that PSA during the same period. For the purpose of this calculation, “volume of service” means Medicare fee-for service allowed charges or payments. CMS has agreed to provide the financial data necessary to make these calculations. ACOs whose combined common service share in each participant’s PSA is thirty percent or less qualify for the antitrust safety zone, with certain qualifications and exceptions. Hospitals and ambulatory surgery centers that choose to participate in an ACO must do so on a non-exclusive basis to qualify for the safety zone. Physicians, regardless of their status as hospital employees, can be exclusive to a particular ACO and still qualify for the safety zone unless they fall within the Rural Exception or Dominant Participant Limitation.

The Rural Exception permits one physician per specialty from each rural county to participate in an ACO on a non-exclusive basis without affecting the ACO’s safety zone status, even if that physician’s participation raises the applicable PSA share for that service above thirty percent.  Rural hospitals, defined as a Sole Community Hospital or a Critical Access Hospital, also may participate in an ACO on a non-exclusive basis regardless of the thirty percent threshold without affecting the ACO’s antitrust safety zone status.

The Dominant Provider Limitation applies to ACOs that include participants whose PSA share exceeds fifty percent for a service that no other participant provides in that PSA.  Such ACOs may still qualify for the antitrust safety zone if their contracts with the dominant providers and commercial payers are non-exclusive.  Qualified ACOs will remain in the safety zone for the duration of their agreements with CMS absent some significant change to the ACO’s provider network.  An ACO that exceeds the 30 percent PSA limitation due solely to patient growth will not lose its safety zone status.

Additional Antitrust Guidance

The Agencies recognize that ACOs with high PSA shares may nevertheless be procompetitive and lawful. Noting that an “ACO that does not impede the functioning of a competitive market will not raise competitive concerns,”[14] the Agencies identified the following conduct that ACOs with high PSA shares should be careful to avoid.:

  1. Adopting clauses or provisions in contracts with commercial payers that prevent or discourage them from directing or incentivizing patients to choose certain providers, including providers outside of the ACO
  2. Tying sales of the ACO’s services to the purchase by commercial payers of other services, including services from providers outside of the ACO or providers affiliated with an ACO participant
  3. Contracting with ACO hospitals, ASCs, physician specialists other than primary care physicians, or other providers on an exclusive basis
  4. Restricting a commercial payer’s ability to provide cost, quality, efficiency, and performance information to aid health plan enrollees if such information is similar to the cost, quality, efficiency, and performance measures that are used in the Shared Savings Program.
  5. Sharing competitively sensitive data that an ACO’s provider participants could use to set prices or other terms for services they provide outside of the ACO.

Newly formed ACOs – namely ACOs that had not signed or negotiated contracts with private payers or participated in the Shared Savings Program prior to March 23, 2010 – can obtain additional antitrust guidance by requesting an expedited 90 day review from one of the Agencies. ACOs requesting such a review must first provide the following information to the Agency that will be conducting the review:

  1. All documents submitted by the ACO to CMS as part of its application to participate in the Shared Savings Program, including sample participation agreements, any financial arrangements between or among the ACO and its participants, as well as the ACO’s bylaws and operating policies.
  2. Documents or agreements relating to the ability of the ACO’s participants to compete with the ACO, either individually or through other ACOs or entities, or relating to any financial or other incentives that encourage ACO participants to contract with CMS or commercial payers through the proposed ACO.
  3. Documents discussing the ACO’s business strategies or plans to compete in the Medicare and commercial markets and the ACO’s likely impact on the prices, cost, or quality of any service provided by the ACO to Medicare beneficiaries, commercial health plans, or other payers.
  4. Documents showing the PSA calculation for each ACO participant and either PSA share calculations or other data showing the current competitive significance of the ACO or its participants within the relevant geographic service area of each participant.
  5. Any restrictions that prevent ACO participants from obtaining information regarding prices charged by other ACO participants to commercial payers that do not contract through the ACO.
  6. Information showing the identity, including points of contact, of the five largest commercial health plans or other payers, actual or projected, for the ACO’s services.
  7. The identity of any other existing or proposed ACO known to operate, or known to plan to operate, in any PSA in which the ACO will provide services.

Within 90 days after the information is received, the reviewing Agency will notify the requesting ACO that its formation is not likely to raise competitive concerns, has the potential to raise competitive concerns, or is likely to raise competitive concerns. ACOs that raise competitive concerns are subject to further investigation by the Agencies as well as antitrust enforcement action.


The Policy Statement assures potential ACO participants that their participation in the Shared Savings Program will be evaluated for compliance with federal antitrust law under the rule of reason. Health care providers who form and operate ACOs in a good faith effort to lower the cost and improve the quality of health care should encounter little antitrust resistance. Providers who acquire market power as a result of participating in the Shared Savings Program should expect to have their collective efforts closely monitored by the Agencies.

One question that remains unanswered is whether more rather than less antitrust enforcement is necessary to lower health care costs while increasing quality. A 2010 report issued by the Massachusetts Attorney General, for example, identified market leverage, measured by the relative market position of individual hospital or provider groups compared with other hospitals or provider groups within a geographic region, as a relevant factor in explaining the cause of significant price variations for health care in the state.[15] More recently, in a Policy Brief issued by the Committee for Economic Development, Alain C. Enthoven, Marriner S. Eccles Professor of Public and Private Management, Emeritus, at the Stanford University Graduate School of Business, called for the development and enforcement of an effective anti-trust policy for health care as a necessary policy change, noting that “[m]any large hospital systems have formed with the result, if not the intent, of greatly increasing market power.”[16] It appears that the role of antitrust enforcement in health care reform may be just beginning. 

[1]Dept. of Justice Statement of Sharis A. Pozen, Chief of Staff Antitrust Division, Before the Subcommittee On Antitrust, Competition Policy And Consumer Rights Committee On the Judiciary, United States Senate (Dec. 1, 2010) at p. 8.
[2]JPPS at p. 2.
[3]U.S. Dept. of Justice & Fed. Trade Comm’n, Antitrust Guidelines For Collaborations Among Competitors § 1.1(2000).
[4]Policy Statement at p. 3.
[6]U.S. Dept. of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (rev.ed.2010).
[7]Policy Statement at p. 3, FN 9.
[8]See, e.g., Arizona v. Maricopa County Med. Society, 457 U.S. 332, 342(1982).
[9]U.S. Dept. of Justice & Fed. Trade Comm’n, Statements of Antitrust Enforcement Policy In Health Care (1996) at pp. 42, 44.
[10]Id. at p. 28.
[13]Policy Statement at p. 5
[14]Id. at p. 9.
[15]Examination of Health Care Cart Trends and Costs Drivers, Report For Annual Public Hearing, Office of Attorney General Martha Coakley, March 16, 2010, at p. 4.
[16]To Reform Medicare, Reform Incentives and Organization, Alain C. Enthoven, Committee for Economic Development, 2011.