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Accountable Care Organizations: Reaping the Benefits of Increased Compensation While Avoiding Antitrust Risks

December 21, 2010

By: Gregory M. Garrett

Buried in the health care reform act passed earlier this year is a provision requiring the U.S. Department of Health & Human Services (DHHS) to create a program promoting Accountable Care Organizations (ACOs).  This program will provide strong financial incentives for doctors, hospitals, and other health care providers to create organizations to coordinate patient care amongst themselves and reduce the total cost to the Medicare program.  ACOs are designed to promote higher quality patient care at a lower total cost, and the Congressional Budget Office estimates that ACOs may save Medicare $4.9 billion through 2019, and some of those savings are expected to go back to the ACOs.  Nonetheless, health care providers taking advantage of the program will need to be careful to avoid violating the antitrust laws, especially with the recent attention directed to the health care industry by antitrust enforcers.

As part of the health care reform act, DHHS is required to create a "shared savings program" no later than January 1, 2012.  Under the program, physicians, physician groups, and hospitals will create and own ACOs-business entities, such as corporations, partnerships, and limited liability companies.  DHHS will then certify ACOs to participate in the shared savings program, and will assign to each ACO a minimum of 5,000 Medicare beneficiaries.  Acting together and through the ACO, the physicians and hospitals making up the ACO will coordinate the care of the Medicare patients, and each member of the ACO will submit his, her, or its own bill to Medicare.  If the members of the ACO, as a group, are able to deliver care to their designated Medicare patients at a total cost saving to the Medicare program, part of those savings will be paid by Medicare to the ACO.  That payment would then be distributed by the ACO to its members.  

Potentially standing in the way of the ACOs are federal and state antitrust laws.  The primary goal of the antitrust laws is to prevent combinations that restrain competition.  Violators are subject to criminal penalties and can be held liable in civil proceedings.  In the health care context, a classic example of an antitrust violation is an agreement among individual physicians to set the rates that they will accept from health insurance companies.  Because each physician is an individual competitor, an agreement to fix reimbursement rates is illegal.   

If an ACO were to limit its operations to dealings with Medicare, and keep its membership open to any willing health care provider, then the antitrust laws should be of little concern to the ACO members, because the rates paid by Medicare are set by the federal government and are not the result of free market competition.  Nonetheless, it is likely, if not inevitable, that ACOs will use their newly found collective bargaining power to attempt to negotiate higher reimbursement rates from private insurers and other favorable terms on behalf of their members.  ACOs might also call on their physician and hospital members to boycott insurers that refuse to pay higher rates, and revoke the membership of health care providers that fail to follow their directives.  Conduct such as this can raise serious antitrust concerns.

The Department of Justice and the Federal Trade Commission-the agencies that enforce the federal antitrust laws-have recognized the potential for ACOs to run afoul of the antitrust laws, as has DHHS.  All of the agencies involved are examining the potential conflict between the establishment of ACOs and the antitrust laws, and have promised additional guidance in the future.  In the meantime, health care providers should continue to be guided by the 1996 Statements of Antitrust Enforcement Policy in Health Care.

In sum, ACOs may provide financial benefits to physicians, hospitals, and other health care providers, while at the same time increasing the quality of patient care and reducing costs.  Health care providers who choose to create or join an ACO, however, should ensure that they comply with federal and state antitrust laws.

If you have any questions regarding your business in Maryland, please contact Greg Garrett at 410.752.9767 or via email at ggarrett@tydingslaw.com.

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