Do ACOs require exceptions to antitrust rules?

Kevin Outterson is an associate professor at Boston University School of Law.

Robert Pear at NYT channels what many of us are thinking and blogging:  ACOs will lead to additional market power for hospitals and their provider networks.  As Prof. Tim Greaney at SLU Law says in the NYT article:  “The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.”

(Tim’s full paper on ACOs is here).  Just to be clear – under existing antitrust rules, hospitals under joint ownership can form ACOs with employed physicians without a hitch.  Financially integrated delivery systems can qualify as Medicare ACOs without so much as a speed bump from the FTC.

Most of the recent FTC enforcement actions have involved financially independent groups of physicians attempting to contract jointly, either with or without a hospital partner (see an excellent review here by Taylor Burke and Sara Rosenbaum).  Under existing antitrust rules, providers try to demonstrate clinical integration if they lack actual financial integration.

But as Kelly Devers and Robert Berenson noted, ACOs could take at least 4 organizational forms, from loosely affiliated to full financial integration.  Elliott Fisher and colleagues acknowledge this continuum in provider integration, and suggest that only the most fully integrated ACOs should receive the most aggressive “Level III” bundled payment incentives.

So here’s the nub – should we allow independent physician groups to bend antitrust rules and jointly contract in ACOs or should we require them to merge with hospitals or integrated provider groups first?

It’s not immediately clear which one would be better for health care competition policy, despite a recent workshop on exactly this subject by the FTC.  If we don’t modify existing antitrust rules, physicians may be forced to fully merge with powerful physician organizations or join hospital systems as employees.  These mergers will be difficult to undo and market barriers to entry will be substantial.  These mergers will apply for all payors, not just Medicare.  If we grant antitrust exceptions, along the lines of clinical integration, at least these providers remain (theoretical) competitors for other contracts.  That tips the balance for me, since a successful healthcare antitrust challenge will rarely result in unscrambling a financially integrated omelet (see Evanston Hospital).

The NYT article also discussed waivers to fraud & abuse rules, but I’ll save that for a future post.  (My previous posts on ACOs include historical background and past failures).

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