ACOs, Antitrust and Anesthesiologists

The Centers for Medicare and Medicaid Services (CMS) has been encouraging the growth of accountable care organizations (ACOs) and other integrated models under the impetus of the Affordable Care Act (ACA).  The Federal Trade Commission (FTC), on the other hand, remains fiercely protective of competition.  If competitors coalesce into a single large organization, there will be fewer competitors.

The ACA provides that “nothing [in the legislation] shall be construed to modify, impair or supersede the operation of the antitrust laws.”  In October 2011 the FTC jointly with the Department of Justice issued its Final Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations—following, but not allaying, much criticism of the corresponding proposed rule.

The tension between the two drives, integration versus competition, has increased steadily since the passage of the ACA.  A recent and unusual FTC decision to go to court to block the acquisition of a medical group by a hospital system crystallizes the conflict.  It also offers guidance, indirectly, to anesthesiologists and other providers involved in—or resisting—a merger or acquisition.

St. Luke’s Health System, which operates four, six or seven hospitals in and around Boise (depending on the information source), acquired the multi-specialty Saltzer Medical Group, based in Nampa, Idaho on December 31, 2012.  St. Luke’s closed on the deal after the chief judge for the U.S. District Court refused to grant a temporary injunction sought by St. Luke’s main competitor in the Nampa area, St. Alphonsus Health System. A temporary injunction is granted when the plaintiff persuades the judge that it will suffer irreparable harm if forced to wait for a regular trial and that it has a good case.  The chief judge wrote: “St. Luke's counsel represented that their client will not be prompting Saltzer's physicians to steer patients to St. Luke's. Given these circumstances, the Court cannot find it likely that St. Al's prediction of an immediate referral drop will actually occur by the time the Court can hold a trial in this case.”

On January 10, 2013, St. Luke’s Clinic Coordinated Care was selected as one of 106 new Medicare ACOs.  Recall that under Medicare’s Shared Savings Program, ACOs must meet quality standards to ensure that savings are achieved through improving care coordination and providing care that is appropriate, safe, and timely. CMS has promulgated 33 quality measures on care coordination and patient safety, appropriate use of preventive health services, improved care for at-risk populations, and patient and caregiver experience of care.  According to the Agency, government savings from this initiative are up to $940 million over four years.

Two months later, the FTC, together with the Idaho Attorney General, announced that it would file a complaint to block St. Luke’s acquisition of Saltzer Medical Group and would seek to have the proceedings consolidated with the private action brought by St. Alphonsus.

The director of the FTC’s Bureau of Competition asserted that the result of the acquisition “will be” higher prices for the medical group’s services.  All four Commissioners voted in favor of filing the complaint. The FTC’s press release stated:

According to the joint complaint, St. Luke’s acquisition of Saltzer was anticompetitive and violated Section 7 of the Clayton Act and Section 48-106 of the Idaho Competition Act. It created a single dominant provider of adult primary care physician (adult PCP) services in Nampa, with the combined entity commanding nearly a 60 percent share of that market. In addition, an alternative network of health care providers that does not include St. Luke’s/Saltzer’s primary care physicians becomes far less attractive for employers with employees living in Nampa. The FTC and Idaho Attorney General allege that the newly combined primary care practices will give St. Luke’s greater bargaining leverage with health care plans, with higher prices for services eventually passed on to local employers and their employees.

Mere size or market share do not establish an antitrust violation.  Nor does the ability to command higher prices by virtue of market dominance.  In the particular case of Medicare ACOs, the FTC and DOJ has provided for automatic “Rule of Reason” analysis that weighs anticompetitive against procompetitive effects, explaining in the proposed Statement of Antitrust Enforcement Policy:  “organizations meeting the CMS criteria for approval as an ACO are reasonably likely to be bona fide arrangements intended to improve the quality, and reduce the costs, of providing medical and other health care services through their participants’ joint efforts.” 

The potential anticompetitive effect of St. Luke’s acquisition of Saltzer and its 40-plus physicians is the health system’s much greater bargaining leverage, ultimately leading to higher costs for patients and their employers.  In the private action, plaintiff St. Alphonsus argued that if the merger occurred,  “St. Luke’s will put pressure on Saltzer’s physicians to steer patients away from St. Al’s to St. Luke’s”  and that there would be a large drop in referrals.  On the procompetive side, St. Luke’s claimed the efficiencies of integration, the classic defense raised in FTC merger and acquisition litigation.  There is scant indication in the public record thus far of what those efficiencies are.  One of them, however, would be joint managed care contracting—which must be “reasonably necessary” to the acquisition’s achievement of clinical integration.  As explained by Toby C. Singer, Esq. in Antitrust Implications of the Affordable Care Act, J. Health & Life Sci. L., February 2013, at 57,

This concept requires that collective managed care negotiations by the competing providers be reasonably necessary to achieve the clinical integration goals.  [Footnote omitted] For example, joint contracting may be necessary to ensure that all providers who have agreed to abide by the network’s clinical integration protocols are included in a given health plan’s network of available providers. Without this, primary care physicians may not have the right mix of specialists available for referrals, which may be particularly important when achieving an ACO’s goals is at stake.

It is helpful to contrast the facts that caused the FTC to challenge St. Luke’s with the circumstances in another recent hospital-physician consolidation that received a stamp of approval.   An existing physician-hospital organization (PHO) in Norman, Oklahoma “is proposing to negotiate contracts with health plans for a majority of doctors in its region, but is using electronic health records, quality-of-care audits, and a guarantee of nonexclusive dealing to defray concerns about price-fixing.” (Joe Carlson, Beyond ACOs: FTC Approves Another Path to Coordinated Care, Modern Healthcare, March 9, 2013.)  The FTC staff advisory opinion on the Norman PHO considered the PHO’s proposed new network legal for the following reasons:

• The 280 doctors involved—a majority of the physicians in Norman—do not work for a single entity and would be considered competitors in their 38 medical specialties;
• They work for various private practices or the publicly owned 388-bed Norman Regional Health System, and they will remain independent competitors in the future, even as they collectively work toward common prices;
• Physicians may choose to leave the network if they do not like the contract rates and may attempt to negotiate their own prices with health plans. The PHO will not use its purchasing power to prohibit health plans from working with doctors outside the network;
• The network is developing its own clinical practice guidelines on 50 common diseases and will audit providers on their care, counsel outliers, and potentially even expel noncompliant doctors from the network;
• The results of the audits will be available to the network and to health plans, and
• There will be a uniform health information technology system permitting the unaffiliated doctors to share patient treatment and quality data.

The most obvious difference between the Norman PHO and the St. Luke’s-Saltzer ACO (apart from their legal form, which is not dispositive) is that the physicians in the PHO will remain independent competitors with different employers.  Critically, they may negotiate separate contracts with health plans if they prefer.  In contrast, the Saltzer physicians are covered by a Professional Services Agreement ("PSA") between St. Luke’s and Saltzer. Under the PSA, Saltzer’s physicians will provide medical services on behalf of St. Luke’s, mostly in clinics operated by St. Luke’s, and in return, St. Luke’s agrees to compensate Saltzer and its physicians for performing those medical services.  St Luke’s will conduct all managed-care contracting and billing for the Saltzer physicians and staff.

The assurances of St. Luke’s that it would not “be prompting Saltzer’s physicians to steer patients to St. Luke’s” did not overcome the apparent perception of a de facto exclusive arrangement that was not required for the efficiencies to be achieved.

Michael Murphy, president and CEO of the Iowa Health System’s ACO, was credited in Beyond ACOs with the idea that “the concepts of coordinated, accountable care embodied in the healthcare reform law are giving healthcare providers from independent organizations more ability to create the strong, centralized governance models that are needed in such an organization, regardless of whether it's a PHO, IPA, ACO or any other abbreviation.”  He was quoted as follows:  “I don't believe we need to own the continuum of care in order to do this work. What we need to do is bring together sites of care under a common governance model.”

It would appear—although we caution again that the public record is very incomplete—that the FTC has qualms about hospitals “owning the continuum of care.”  Physicians and hospitals can align themselves to improve health care quality and achieve cost savings without losing their independence and becoming monoliths.  That is not to say that employment of 50 percent of more of the primary care physicians in a geographic market by one health system is necessarily going to create antitrust issues going forward.  Until we know more about the St. Luke’s circumstances, we will only go so far as to say that anesthesiologists who are being pressured to accept employment or its functional equivalent by an organization that will thus control a majority share of the local supply of anesthesia services may want to note and mention the St. Luke’s litigation.  We will certainly update our readers as the message becomes clearer.