Filed under: Accountable Care Organization, Antitrust, Cost Control, Health Reform, Insurance Companies
Theresa Brown’s op-ed in the New York Times on Sunday, title “Out of Network, Out of Luck,” raised concerns about patients’ access to physicians within a restricted provider network. Brown describes the market in Pittsburgh, where two large hospital systems, each with an allied health plan, are battling for market share, leaving some patients with a painful choice: leave their treating physician, sometimes during a course of care, or pay higher out-of-network fees. Brown notes that the hospital systems’ integration with payers, and their aggressive swallowing up of physician practices, are steps taken in furtherance of the goals of cost containment and quality improvement.
The piece highlights the growing problem of network adequacy in health plans. The Affordable Care Act’s goal is expanded coverage, but it encourages some mechanisms to restrain cost. For example, health insurance exchanges’ lower-than-expected premiums resulted in part from insurance plans’ restrictive provider networks. The business proposition for narrow networks has been clear for decades, as plans can offer providers patient volume in return for price concessions. This dynamic is complicated, as Professor Tim Greaney has described, near-monopsony power of insurers in some states, and hospital system mergers undertaken in reaction to insurer power, but which can also have anti-competitive effect.
As the Pittsburgh situation demonstrates, powerful hospital systems and insurance plans will duke it out for market power, but may also combine in new, hybrid organizations. As the battleground moves from fee-for-service to more sophisticated reimbursement tools such as global payments, the elbows will get sharper, and the competition that remains will likely narrow patient choices even further. Massachusetts, the precursor in so much that is cutting edge in health policy, is showing the way. As Mechanic, Altman, and McDonough described last year, substantial pressure from plan sponsors and government have led provider systems to cooperate in programs that narrow patient choice, in the interest of restraining cost.
Is this a bad thing? Read more
Tara Ragone in Modern Healthcare on potential impact of U.S. Supreme Court hospital antitrust decision
Research Fellow & Lecturer in Law Tara Ragone appeared in Modern Healthcare on the potential impact of a recent U.S. Supreme Court decision which found a hospital not exempt from antitrust scrutiny, despite its claim to be protected from such through “state action immunity doctrine,” which, according to Modern Healthcare, “gives states wide latitude to regulate competition.”
The Court’s decision was unanimous, citing the fact that although the hospital system in question, Phoebe Putney Health System, “operates public hospitals under a $1-a-year lease from the Albany-Dougherty Hospital Authority,” it did not dispute that its latest hospital acquisition would give it “control of 86% of a six county market after the sale.” The Court, according to Modern Healthcare, ruled that Phoebe Putney’s financial relationship with the state was not sufficient to render its state action immunity defense tenable, and that “states must expressly grant antitrust immunity to local entities.”
The Modern Healthcare article notes, however, that the decision may also have impact on Medicaid ACOs under the ACA.
Modern Healthcare writes:
And it also could affect Medicaid ACOs. “The state action doctrine has been expanded, expanded, expanded to essentially immunize them,” [Matthew] Cantor said. “The Supreme Court is going to look a bit wary about stark anti-competitive behavior.”
But Tara Adams Ragone, a research fellow and lecturer at Seton Hall University School of Law who has written about how to structure Medicaid ACOs to avoid antitrust scrutiny, noted that the laws in New Jersey, New York, Oregon and Washington do state that they intend to authorize anti-competitive behavior.
“It doesn’t change things from my analysis,” she said about the Phoebe Putney decision. Yet she added that states may have to review statutes that don’t contain that explicit language.
The Phoebe Putney decision also doesn’t address the second prong of the state action doctrine, which requires states to actively oversee the anti-competitive behavior. “That’s where there’s a lot of work to be done,” she said.
Ragone and Cantor pointed out that it’s still unclear whether the FTC and U.S. Justice Department even intend to challenge ACOs as anti-competitive. A classic antitrust case involves entities colluding to fix prices—but the whole goal of an ACO is to reduce costs.
Read the full Modern Healthcare article, “Phoebe Putney dealt legal blow by Supreme Court.”
Filed under: Antitrust, Pharma, Prescription Drugs, Recommended Reading
Bundles in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines, by Kevin W. Caves and Hal J. Singer of Navigant Economics, provides a technical but still accessible analysis of the anticompetitive effects of vaccine manufacturers’ practice of conditioning price discounts on physician buying groups agreeing to purchase the manufacturers’ vaccines in a bundle and agreeing not to purchase other manufacturers’ products. The article begins with an interesting overview of the characteristics of the vaccine market, an introduction to the physician buying groups that purchase vaccines and to the anti-kickback concerns they raise, and a summary of the (somewhat up in the air) legal standard for when bundled discounting becomes an antitrust violation.
The authors then present their analysis of the uphill battle Novartis (a source of funding for the article) will have to fight to induce physicians to “break the bundle” and buy its new meningitis vaccine. The authors conclude that even if Novartis were to give away its meningitis vaccine for free, “buyers defecting from [Sanofi Pasteur's bundle of vaccines, which includes Sanofi's meningitis vaccine,] would still lose $14.05 per patient in expected value.” They present data indicating “that buyers unencumbered by … Sanofi’s loyalty contracts are over three times as likely to purchase [Novartis' vaccine], relative to encumbered buyers…” and conclude that enough of the market is foreclosed to Novartis to establish a presumption of anticompetitive effects and concomitant harm to consumers. Per the authors, “[i]n an industry served almost exclusively by large, multi-product incumbents, with no prospects for generic competition and extremely limited entry by competitive rivals of any kind, these findings have significant implications for public policy and antitrust enforcement.”
Somewhat less accessible (due to a plethora of equations) but still well worth reading is Tort Liability and the Market for Prescription Drugs by Eric Helland, Darius Lakdawalla, Anup Malani, and Seth Seabury. Helland and his co-authors present the results of an empirical study of the relationship between product liability rules and drug price and utilization. While the effect of a liability rule can often be studied by comparing a state that makes a change to the rule with one that does not, the authors had to modify this approach because drugs are sold nationally. They determined the exposure to punitive damages caps of each of nearly 16,000 drugs by first determining each drug’s geographic distribution of sales, a figure which varies from drug to drug due to geographic variation in the prevalence of disease. The authors found that the degree of exposure to caps was correlated with an increase in drug prices but also with an increase in drug utilization. Tighter liability standards also correlate with a reduction in adverse drug reactions. The authors write that their numbers “imply that if every remaining state adopted some reform, there would be a 23% increase in all [adverse] events and a 25% increase in serious [adverse] events … among branded drugs.” They conclude that “on balance, liability improves consumer and social welfare.”
Filed under: Accountable Care Organization, Antitrust, Health Reform
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.
Filed under: Accountable Care Organization, Antitrust
The Center for American Progress (CAP) recently put together a stellar panel on Accountable Care Organizations and Competition Policy. The panelists are listed below the video, and include the well esteemed Professor Tim Greaney– who taught here at Seton Hall Law last year as a Visiting Professor and has contributed a number of posts to HRW over these last few years.
CAP introduced the crux of the matter on its web page about as well as it can be expressed:
One of the most challenging questions facing ACOs is how to provide integration without sacrificing competition and the decreased cost and increased quality it produces. The Center for Medicare & Medicaid Services, the Federal Trade Commission, and the Department of Justice have already been carefully scrutinizing these issues. Will some ACOs threaten competition and eventually raise costs for consumers? To what extent can ACOs overcome the barriers set up by current antitrust regulation? How should the lessons from health care reform educate the role of antitrust enforcement and regulation? How should we approach health care antitrust issues in an era of ACOs?
Christine Varney, Assistant Attorney General, Department of Justice
Christi Braun, Shareholder, Ober/Kaler
Tim Greaney, Co-Director, Center for Health Law Studies, Saint Louis University Law School
Melinda Hatton, Senior Vice President and General Counsel, American Hospital Association
Joe Miller, General Counsel, America’s Health Insurance Plans
Sharis Pozen, Chief of Staff of the Antitrust Division, Department of Justice
David Balto, Senior Fellow, Center for American Progress