The final rule for Accountable Care Organizations (ACOs) changed the Medicare Shared Savings Program (MSSP) outlined in the proposed regulations in several respects: fewer quality and performance measures, reduced financial risk, and greater potential financial gain, just to name a few.  These were all amended from the proposed regulation in order to make the MSSP more attractive to health care providers.

The most significant change, however, was not in the program itself, but rather in the Proposed Antitrust Guidance from the federal antitrust enforcement agencies, the Federal Trade Commission and Antitrust Division of the US Department of Justice (the Agencies).  I blogged in this space earlier to commend CMS and the Agencies for incorporating competition values into the ACO program and doing so in a way that accommodated multiple competing interests.  As has been exhaustively chronicled elsewhere, provider market power is a serious and growing problem, and the Administration was rightly concerned that the MSSP could accelerate the trend to the detriment of Medicare beneficiaries and the private market.

The final ACO rule and associated Antitrust Guidance, while making a rhetorical bow in the direction of antitrust, is in reality a step in the wrong direction.  CMS struck the right balance when it proposed to exclude ACOs that were under credible threat of federal antitrust litigation and, in reversing that judgment in the final rule, significantly increased the potential harm to consumers and Medicare beneficiaries alike.  The risk of anticompetitive harm to the market far outweighs the modest gains CMS anticipates from the MSSP, and the final Rule lacks a quick and effective enforcement mechanism to prevent the MSSP itself from causing consumer harm by promoting provider consolidation that otherwise would not have happened.

Looking forward, those of us who believe that health care markets depend on competition to produce benefits for consumers should encourage and facilitate actions by the Agencies to vigorously enforce the law.

Comparing the Proposed and Final Antitrust Guidance

The proposed Guidance. The proposed ACO rule and Antitrust Guidance required program participants to calculate their share of a “Primary Service Area” (PSA) market using Medicare data, and those over a 50 percent PSA share would have been required to go through an abbreviated antitrust review by one of the Agencies.  Those potential ACOs who failed that Agency review would not have been able to participate in the program.  The proposed Antitrust Guidance also provided a “safe harbor” for ACOs with PSA shares under 30 percent, an opportunity for an advisory opinion, a list of practices to avoid in order to minimize the risk of a violation and a statement that ACOs that qualified for the program would be evaluated under the antitrust rule of reason instead of the “per se” rule.

The final Guidance. The final Antitrust Guidance substitutes a mandatory notification of all ACO applicantions to the Agencies in the place of mandatory exclusion from the program for those ACOs under threat of Agency enforcement action.  The mandatory notification resembles, in a very loose way, the concept and process utilized by the Agencies in their regular merger and acquisition review work. (The Hart-Scott-Rodino Act, 15 USC § 18a, provides for mandatory notification and waiting periods for all stock or asset acquisitions that meet certain minimum thresholds.)

The proposed ACO agrees to have its application shared with the Agencies, which will then decide independent of CMS whether to initiate an enforcement action in court.  The final Guidance is similar to the proposed Guidance in several respects: it provides for a safe harbor for ACOs under a 30 percent PSA share, it has a list of conduct to minimize antitrust risk, and it confirms the Agencies will afford rule of reason treatment to ACOs that qualify for the MSSP.

The final Rule describes a three-prong approach to maintain competition among ACOs.  First, the Agencies will offer voluntary expedited antitrust review to newly formed ACOs.  Second, CMS will provide the Agencies with aggregate claims data and share a copy of the ACO application with the Agencies, all of which is intended to help the Agencies assess and monitor ACOs’ effects on competition and take enforcement action as appropriate.  Third, the Agencies will rely on their existing enforcement tools to evaluate competition concerns.

The critical difference between the proposed and final Guidance. The most important difference between the Proposed and Final Antitrust Guidance lies in the enforcement mechanism.  As proposed, those ACOs over a 50 percent PSA share which failed to obtain a “clean bill of antitrust health” would not have been eligible to apply for an ACO contract.  That policy set the right balance between the potential costs and benefits of the Medicare Shared Savings Program. The MSSP is a rare piece of the Affordable Care Act with wide stakeholder support, but even those who have faith in the program are modest in their claims.  The Final Rule itself predicts a four year median net savings of $470 million, which in the scheme of what Medicare spends, is a rounding error.

As small is that number is in terms of the Medicare budget, the more relevant comparison is to the potential damage to consumers if the MSSP acts as a catalyst for unwarranted and anticompetitive provider consolidation.  The amount of money we spend on health care services is staggering – estimated at 17 percent of GDP – and if the MSSP causes prices to increase in even a few markets, we will experience a significant wealth transfer from health care consumers to providers and a corresponding limitation on access to and quality of care for private market participants and Medicare beneficiaries alike.

The literature on the damage done by health care provider market power is powerful, and once market power is entrenched the antitrust laws are not an effective tool for fixing the problem.  That’s why the Proposed Policy got it right: the MSSP should have provided the tools to stop market power in its incipiency instead of hoping it would be taken care of later.  Competition policy generally recognizes that market power problems are best avoided instead of remedied after the fact and CMS unfortunately decided on a course that may well add to a wide-spread and serious problem.

What Should Be Done Now

Whatever the rationale for shifting policies (See Note 1 below), the focus now should be to prevent the potential harm from coming to fruition.  The Agencies should place a high priority on reviewing ACO applications and make use of the information and claims data provided as part of the ACO application.  Health plans, employers and other purchasers of provider services should commit to working with the Agencies to identify problematic ACOs and provide information and testimony necessary to bring cases to court, and Congress should provide the necessary increased funding to ensure the Agencies have the resources to commit to this vital mission.

While the Medicare Shared Savings Program is a potentially useful step forward in providing incentives for better coordinated, less fragmented care, the danger to competition is real.  If ACOs prove to be just another health care acronym and passing fad their ultimate legacy could be further consolidated provider markets, and that would be a bad end for a promising idea.


Note 1. The Final ACO rule explained that it was concerned it may be illegally conferring unreviewable authority on the Agencies and cited an article as summing up the legal argument.  See Richard D. Raskin, Ben J. Keith & Brenna E. Jenny, “Delegation Dilemma: Can HHS Require Medicare ACOs to Undergo Pre-Clearance by the Antitrust Agencies?,” 20 Health L. Rep. 961 (2011).  This concern is misplaced.  The HHS Secretary would not be delegating away her authority under the Social Security Act or the Affordable Care Act, but is instead recognizing the Agencies will continue to exercise their long-standing authority to enforce the Sherman Act.

The Secretary has wide discretion to decide which ACOs will best fulfill the SSP goals, and the mandatory antitrust review would reveal actionable information that a potential participant would be devoting significant time and resources to a legal battle.  The issue is not delegation, it is whether the Secretary is reasonably exercising her discretion to administer the SSP in a manner that will not be disrupted by the Agencies’ independent authority to enforce the antitrust laws; she would be well within her authority to not select program participants that have been credibly threatened with expensive, resource draining litigation.