Accountable Care Organizations and Antitrust: A New PSA Test

A New PSA Testtim-greaney

Tim Greaney

Saint Louis University School of Law

There’s a new PSA test in health care.  Hopefully it will prove more reliable than that other one.

In conjunction with the unveiling of the long-awaited ACO regulation by HHS, the FTC and Department of Justice issued a Joint Policy Statement setting forth their standards for conducting an expedited (90-day) antitrust review of applicants for ACO certification.  The agencies explained that they will evaluate applicants’ market power based on the ACO’s share of services in each participant’s Primary Service Area (PSA) defined as the “lowest number of contiguous postal zip codes” from which the hospital or physician draws at least 75 percent of its patients for its services.   The Statement summarized the antitrust implications of ACOs formed by hospitals or physician groups with large market shares in their markets:

ACOs with high PSA shares may pose a higher risk of being anticompetitive and also may reduce quality, innovation, and choice for both Medicare and commercial patients. High PSA shares may reduce the ability of competing ACOs to form, and could allow an ACO to raise prices charged to commercial health plans above competitive levels.

The antitrust enforcers were properly concerned with the risk that ACOs could become a vehicle for increasing or entrenching provider market power.  Studies by academics, health policy experts and state governments have documented the impact of provider concentration on insurance premiums. Moreover, a post-reform merger wave may have increased the number of hospital and specialty physician markets and many areas are already served by dominant local providers.  Inasmuch as the success of the ACO concept depends on its ability to spur delivery system change, the predictable intransigence of monopolistic providers presents an important issue. In this regard, it is heartening that the extended (and apparently controversial) regulation drafting process produced a result that promises to constrain the growth and exercise of market power.

Notably, the Policy Statement also removed some uncertainty that may have existed as to the application of prior antitrust enforcement actions and advisory opinions in the ACO context.  For example, the Statement should provide some comfort to those organizing physician networks: ACOs that clear the CMS review of their integration efforts will almost certainly be regarded by FTC and DOJ as “clinically integrated” and hence not subject to the strict “per se” legal standard (More in a subsequent post on the issues raised in evaluating the competitive problems of ACOs in given circumstances).

Market power, however, remains a major sticking point in evaluating ACOs. Antitrust aficionados may question whether the PSA approach employed in the Policy Statement accurately indentifies markets or measures the market power of providers.  As the FTC and DOJ themselves have found, zip code data gives a highly imperfect measure of health care markets. Moreover, there are significant problems in obtaining the necessary data regarding the total volume of services in the providers’ markets, particularly with regard to their services provided to commercial insurers and employers.  However, it appears that the agencies will use this measure as a rough and ready starting point to identify potentially problematic ACOs and those that most obviously raise no competitive problems.

An important and, again, heartening, aspect of the Policy Statement is the agencies’ insistence that applicants with large market shares come forward with justifications and produce data and documents that would assuage competitive concerns.  This should help expedite the process. (Though, if past practice with mergers is a guide, the 90-day clock will not start running until the ACO completes its production of all required information). The agencies make it clear that they will solicit the views of payers and employers before making their determination.  Finally the CMS ACO regulation makes it clear that high PSA ACOs will not be approved unless the FTC or DOJ provides a clearance letter.

Not unlike the inexact science of medical diagnosis, the antitrust agencies are making do with the tools they have.

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