Making Health Reform Work

8/7/2019 Making Health Reform Work

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Making Health Reform Work

Accountable Care Organizations and Competition

David Balto February 2011


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Making Health Reform WorkAccountable Care Organizations and Competition

David Balto February 2011


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1 Introduction and summary

4 What is an accountable care organization?

7 The mistaken skepticism about integration

12 Integration standards for ACOs

15 Concerns over provider market power

20 Endnotes

22Acknowledgement

Contents


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Introduction and summary

Almos 40 years ago Jusice Turgood Marshall wroe ha he anirus laws are

a consumer welare prescripion. In ew markes is compeiion as imporan as

healh care. Tis naions yearlong debae on healh care reorm illuminaed many

auls and weaknesses in our healh care sysem while highlighing he poenial

or meaningul reorm o improve healh care resuls and beter conrol coss. Tis

paper atemps o explain how anirus enorcers need o ully embrace he resuls

o ha inquiry and realign prioriies in order or anirus enorcemen o become

a ool and no an obsacle o improving our healh care sysem.

One criical elemen under he Aordable Care Ac is he ormaion o accounable

care organizaions, or ACOs, which seek o creae inegraed eniies o hospials,

physicians, and oher healh care providers, o beter conrol healh care coss and

deliver high-qualiy services. As explained in his paper, anirus enorcers are

requenly skepical o inegraion, and in he pas, adminisraion anirus enorce-

menor he hrea and cos o enorcemenwas oen a barrier o ecien

collaboraion. A he same ime, reduced enorcemen led o he growh o marke

power, especially in healh insurance and hospial markes. Te resul was ha i

anirus enorcemen was an answer, i was he answer o he wrong problem.

Forunaely, in he Obama adminisraion, healh care anirus enorcemen is

beginning o ocus on he criical healh care compeiion issues.1Te Anirus

Division o he Deparmen o Jusice has challenged a healh insurance merger,

sending a clear signal ha dominan insurers canno reinorce heir marke power

by merger. I has brough a criical case agains exclusionary pracices by a domi-

nan insurer ha reinorced barriers o enry. And he Federal rade Commission

has atacked wo consummaed hospial mergers, including an imporan case ha

would unwind a merger ha would have resuled in increased coss or oupaienand imaging services in Roanoke, VA.

Wha are he imporan lessons rom he healh care reorm debae ha boh

regulaors and anirus enorcers need o embrace?


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Many health insurance markets are highly concentrated.Tis oen resuls in

supracompeiive pros, escalaing numbers o uninsured, rapidly escalaing

coss, and in many cases, evidence o decepive and raudulen conduc. Te

congressional debae clearly and unequivocally esablished he need or he

comprehensive reorm ha was enaced. Counless congressional hearings

uncovered a disurbing patern o egregious, decepive, raudulen, and anicom-peiive conduc in some healh insurance markes.2

Integration is not the problem in health care but is an important solution

for improving quality and cost in the fee-for-service health care system.

Much o he healh care debae ocused on he lack o coordinaion among

healh care providers (ypically hospials and physicians) and how his led o

excessive coss and poor healh care resuls.3Te purpose o he ACOs is o

provide eniies ha can beter coordinae care and be held accounable or

overall healh care resuls.4

Aggregation of market power is a problem. I here is a compeiive problem in

healh care markes, i is due o aggregaions o marke power, such as in healh

insurance, and no because o improper inegraion among healh care providers.

Many o hese ndings direcly undermine he underpinnings o he curren ani-

rus paradigm in healh care. Ta paradigm suggess ha i is necessary o harbor

deep suspicion over inegraion by healh care providers, paricularly eors by

providers o collaborae. Te prioriies anirus enorcemen agencies se oen

appear o preer a sysem o auonomous providers, who are undamenally pow-

erless o deal wih insurance companies.

Bu his paradigm presens a signican problem or healh care and consum-

ers, highlighed by he healh care debae. Providers acing auonomously are

unable o eecively coordinae care because he silo problem leads o more

cosly and less ecien care, and delivers poorer healh oucomes. Te healh

care debae clearly demonsraed ha a lack o inegraion led o more cosly

and lower-qualiy care.

Tis paper explains how he anirus paradigm should be reocused o addresshe compeiive issues surrounding he ormaion o ACOs. I begins by discuss-

ing he opporuniy or ACOs o help ransorm he healh care markeplace

by permiting greaer inegraion o help improve healh care resuls and beter

conrol coss and uilizaion. I hen assesses he recen overly skepical approach


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o healh care inegraion and why ha approach has deerred ecien healh care

collaboraion, and nds ha he problem in healh care is no oo much inegra-

ion, bu inadequae inegraion. Te paper hen assesses one o he mos dicul

issues in assessing ACOs: wheher an ACO has marke power. I suggess anirus,

marke-driven, and regulaory approaches o dealing wih issues o marke power.


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What is an accountable care

organization?

Te healh care debae illuminaed he signican ragmenaion in he delivery o

care. Healh care providers such as physicians and hospials oen do no ac wih

adequae coordinaion. Tis ragmenaion has been idenied as a major cause o

he ineciency o our curren healh care sysem. A lack o coordinaion a boh he

clinical and adminisraive level coninues o degrade paien care and escalae coss.

An accounable care organizaion is a group o healh care providers ha work

ogeher o arrange all medical care or heir paiens. Providers ener ino hesearrangemens wih he undersanding ha hey will share he savings reaped by he

enhanced cooperaion and improved paien care.5Te general idea behind ACOs

is ha by esablishing a coninuum o care among providers who have incenives o

ocus on srong primary care, cos will be conained while care improves.

ACOs aim o creae incenives or healh care providers o beter coordinae care,

and mark an imporan par o he Aordable Care Acs atemp o spur greaer

inegraion and eciency. ACOs represen a single body ha would be respon-

sible or delivering qualiy, evidence-based medicine a a conained cos. As

employers and insurers would be able o choose beween various ACOs, as well as

oher providers, he ACO srucure mimics he procompeiive naure o HMOs

in conrolling coss and improving healh care delivery.6

Te savings o be shared by he providers o an ACO would come rom: more e-

cien care enabled by increased coordinaion; greaer prevenion o acue illness

and he need or higher-cos medical atenion including hospial inpaien and

emergency room care; and a reducion in adminisraive coss due o collabora-

ion across various componens o paien care.

ACOs can be organized in a broad range o ways in order o oser he inclusion o

healh care providers o varying srucure and size. ACOs can be physician group

pracices or a nework o individual pracices, physician-hospial parnerships, or

hospials employing physicians.7o qualiy as an ACO, a group o providers mus

possess he ollowing:


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Leadership, managemen, and legal srucures Processes o ensure he delivery o evidenced-based, coordinaed paien careTe capaciy o repor healh oucomes, cos, and oher indicaors in order o

measure he ACOs success and incenivize he qualiy and eciency o is care8

A criical elemen o ACOs is paymen and how paymen creaes incenives or cosconrol and enhancing qualiy. Tere are hree primary pay reorm models: shared

savings, shared savings and risk, and parial capiaion. In he shared-savings model,

paymens are made on a ee-or-service basis, bu i coss all signicanly below a

given hreshold, he provider receives a percenage o hese savings. Alernaively,

he shared-savings-and-risk model oers ACOs a larger share o savings on he

condiion ha hey also bear a porion o he risk. Tis model would reain ee-

or-service paymens, bu insead o a seting a hreshold as in he previous model,

i would have a corridor in which he ACO could obain all o he savings or

be orced o bear all o he losses. Finally, parial capiaion would uilize a arge

spending level as in he oher models bu would move away rom ee-or-servicepaymens. Regardless o he services uilized, providers in his model would be

paid a lump sum, hus urhermore incenivizing cos conainmen.9

A recen Cener or American Progress paper auhored by Judy Feder and David

Culer recommends ha ACOs uilize varying paymen models in order o es

hem ou and esablish which one works bes.10As he success o each paymen

reorm model depends on boh lowered coss and improved care, i is imporan

ha ACO qualiy is judged on a number o measures, some o which ocus on

paien experience. In order o avoid orcing consumers and providers ino ineec-

ive arrangemens, his repor emphasizes ha policy surrounding ACOs be seen

as evoluionary, no revoluionary.11Te specicaions or ACO arrangemens, he

CAP paper argues, are inended o be adaped as we learn which models bes conrol

cos wihou sacricing he qualiy o paien care.

Te paper also oers a ew specic recommendaions or ACO implemenaion.

Given he economic capabiliy o hospials o esablish he inrasrucure neces-

sary or care inegraion, and he poenial or subsanial cos savings, i seems

only inuiive ha hospials will play a cenral role in he creaion o ACOs. Bu

he CAP paper emphasizes he imporance o aciliaing he creaion o physician-sponsored ACOs as an alernaive. Wih physicians in charge, he paper explains,

a greaer ocus can be placed on primary care and physician engagemen. Tis

change in ocus should improve paien care as well as help reduce he cos o


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unnecessary and prevenable hospial admissions. Physician-led arrangemens

would also preven hospials rom using heir posiion as sponsors o secure paien

reerrals and limi consumer hospial choice. Insead, physician-sponsored ACOs

would encourage hospials o compee wih one anoher or paien reerrals, lead-

ing o higher-qualiy care a lower coss. CAP argues ha he provider-sponsored

model represens he ideal ACO srucure or proecing compeiion in he healhcare sysem, capuring he mos savings and improving he qualiy o care.

On paymen incenives, he CAP paper nds ha merely receiving a porion

o he savings is a raher limied incenive or providers o conain coss and

improve care. Insead, i suggess ha in order o srenghen hese incenives,

ACOs should be encouraged or even orced o evenually move oward paymen

models ha allow paricipans no only o bene rom saving bu also o share

he risk o overspending.

Finally, he paper sresses he imporance o consumer sovereigny in he imple-menaion o ACOs. Individuals should be able o reely decide i hey would like

o paricipae in an ACO and hey should be proeced by rules ha ensure heir

care is no being sacriced by eors o conain coss. Consumers, CAP argues,

should be parners in his process o securing beter care a a lower cos.


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The mistaken skepticism

about integration

Accounable care organizaions involve collaboraion among compeiors.

Collaboraion in healh care has requenly raised anirus concerns. Alhough

collaboraion is a necessary elemen o an ecien healh care delivery sysem,

a imes groups o compeing providers have atemped o engage in price xing

under he guise o collaboraion. Te agencies responsible or regulaing anirus

issues ry o disinguish beween legiimae collaboraion and more suspec eors

a price xing. Tis inquiry ocuses on he quesion o inegraionwheher he

group o providers has inegraed heir pracices by acceping commimens ocos savings and improved healh care delivery, or wheher he venure is a sham

eor o engage in illegal price xing.

Seting he sandards or inegraion has no been a simple process. In ac, one

resul o he Clinon-era eors a healh care reorm was he DOJ and he FC

issuing join Saemens o Anirus Enorcemen Policy in Healh Care, also

known as guidelines on collaboraion in healh care in 1993. Tese guidelines

generaed considerable conroversy and were revised boh in 1994 and 1996.

Beore he 1996 guidelines were issued, healh care providers could engage in join

negoiaions only i hey were nancially inegraed; ha is, hey were a risk i

hey did no mee cerain goals in reducing healh care coss. Te 1996 guidelines

permited a broader orm o inegraionclinical inegraiona commimen a

eors o reduce healh care coss wihou providers being placed a nancial risk.

When he 1996 guidelines were issued, hen-FC Commissioner Chrisine Varney

cauioned ha he guidelines should reec greaer recepiveness o new and

innovaive orms o provider arrangemens ha do no necessarily involve nancial

risk sharing and suggesing acors ha should be aken ino accoun in reviewing

provider arrangemens ha all ouside o he saey zones.12Te guidelines pro-

vide saey zones ha explain ha venures wih less han a 20 percen marke share(or 30 percen i hey are nonexclusive) do no ace anirus risk.

Iniially, he anirus agencies seemed o embrace Commissioner Varneys advice.

In he our years aer he guidelines were issued, he DOJ and he FC approved


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more han 30 physician join venures o engage in collecive negoiaions wih

healh insurers. In addiion, hey brough a relaively modes number o enorce-

men acions agains physician collaboraions. Many o hese collaboraions

appeared o harm compeiion by hreaening o raise he cos o healh care ser-

vices. Te agencies seemed o be commited o a balanced approach o physician

collaboraion ha enabled he ormaion o new innovaive orms o healh caredelivery. In addiion, he Clinon adminisraion brough enorcemen acions

agains anicompeiive conduc by healh insurers.

Unorunaely, in he las adminisraion, his balance was los. Tere were no

compeiion or consumer-proecion enorcemen acions agains healh insurers

in he las adminisraion despie he ac ha anicompeiive and abusive con-

duc plagued some healh insurance markes. Tere were more han 400 mergers

and he DOJ required he resrucuring o jus wo o hose mergers.

A he same ime, he FC spen nearly all is healh care enorcemen resourcesagains eors by physicians o collecively negoiae. Te FC brough 31 cases

in he pas decade atacking physician groups while he DOJ brough only hree.

Some o hese cases may have been helpul where he physician groups had some

semblance o marke power and here was evidence ha hey had increased prices.

Bu less han a handul o cases had evidence o anicompeiive eecs such as

higher prices. From an anirus perspecive, physician collaboraion has been liv-

ing as a suspec class, acing a grea risk o an anirus challenge.

Te legal sandards applied illusrae his imbalance. In mos siuaions, he anirus

agencies analyze collaboraion among compeiors under a rule o reason ha

requires he agencies (and he cours) o balance he procompeiive and anicom-

peiive eecs. Under he rule o reason, he agencies do no condemn collabora-

ion wihou evidence o likely harm o consumers. Collaboraion among healh

care providers represens he only area where anirus agencies apply he per se

label and condemn endeavors wihou analysis o anicompeiive eecs. Te per

se rule is he legal guilloine o he anirus laws. Under he per se rule, he govern-

men need no demonsrae he conduc has harmed compeiion or consumers.

All o hese cases brough agains physician groups excep one setled, probablybecause o he high cos o a governmen invesigaion. Tere was litle evidence

in he complains led by he governmen ha hese groups acually secured

higher prices or ha consumers were harmed. In ac, in none o he cases did

consumers le any anirus suis seeking damages or he alleged illegal conduc.


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(Tere was only one case led by an insurer and i los.) Tis disproporionae

ocus on physician groups was suppored by no evidence ha higher physician

coss were a signican orce in escalaing healh care expendiures.

In addiion o hese unbalanced prioriies, he FC has demonsraed a dispro-

porionae and unreasonable skepicism or collaboraion by physicians. Tereis an approval process or hese venures; abou 30 were approved in he las

our years o he Clinon adminisraion and only ve were approved in he Bush

adminisraion. Te process or approval has become remarkably complex, ime

consuming, and expensive. Even hough he agencies are commited o provid-

ing advice in 90 o 120 days, in he pas decade he approval process has averaged

more han 436 daysjus slighly less ime han i ook Congress o debae and

enac reorm o he enire healh care sysem.

Matter Year Time for approval

Medsouth, Inc. 2002 236 days

Bay Area Preferred Physicians 2003 340 days

Suburban Health Organization 2006 573 days

Medsouth, Inc. 2007 348 days

Greater Rochester IPA, Inc. 2007 447 days

Tristate Health Partners, Inc. 2009 645 days

Te cos o securing a business review leter rom he FC o permi collabora-

ion has grown exponenially and is now well more han $100,000clearly ou o

reach or any group excep a very large group o providers. Because o he elabo-

rae sandards necessary o demonsrae adequae inegraion o saisy he FC,

hese groups mus increasingly involve large numbers o physicians. Mos o he

approved eniies involve well more han 100 physicians. Ironically, he sandards

applied by he agencies are eecively orcing physicians o orm groups ha are

so large ha hey may appear o acquire marke powerprecisely he problem he

anirus laws wan o avoid.

A he same ime, as almos all enorcemen ocused on physician groups, herewas increased consolidaion in hospial markes and among some groups o

physician specialiss. Some consolidaion is no unexpeced or problemaic; here

was signican overcapaciy in hospial beds in many markesovercapaciy and

hospial mergers oered a means o ecien raionalizaion. In addiion, physi-


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cian groups may have been compelled o merge ino large single-specialy groups

because o he dicul sandards se by he agencies ha prevened oher orms o

collaboraion. Appropriaely, he FC reocused is eors on hospial mergers. I

did a comprehensive sudy o consummaed hospial mergers and challenged one

o he consummaed mergers.

Again, he agencies appear o have dedicaed he vas majoriy o enorcemen

resources o he quesion ointegration o physician-negoiaing groups, no he

market powero healh insurers, hospials, or physician groups. Are hese physi-

cian negoiaion groups a signican compeiive problem? Congress exhausively

examined problems in healh care markes or more han a year. Tere was no men-

ion o hese alleged physician negoiaion groups. Nor does he academic liera-

ure on rising healh care coss ideniy hese eniies as a signican cause o rising

healh care expendiures. Te resuls o he congressional healh care examinaion

are clearhe problem is marke power in some healh insurance and provider

markes and ha is where he agencies resources mus be ocused.

Recenly, boh he DOJ and he FC have begun o reocus heir atenion o

hese concerns o marke power. Te DOJ has se a beter balance in enorcemen

prioriies and is paying some much-needed atenion, a leas, o broken healh

insurance markes. Te DOJ conduced an ineresing sudy o healh insurance

markes ha ocused on he key barriers o enry. Te DOJ hreaened o chal-

lenge he merger o wo Michigan healh insurersBlue Cross Blue Shield o

Michigan and Physicians Healh Plan o Mid-Michiganhis pas March. Te

merger would have creaed an insurance behemoh wih abou 90 percen o he

marke in Lansing. Imporanly, he DOJ recognized he merger would no only

harm employers ha need o purchase insurance bu also physicians who would

ace reduced reimbursemen. Te companies called o heir merger because o

he DOJs hrea, mainaining some level o compeiion in ha marke.

Moreover, in mid-Ocober o las year, he DOJ sued Blue Cross Blue Shield o

Michigan or mos avored naion, or MFN, provisions. An MFN requires a

hospial provides an insurer is bes price and can preven oher healh insurers

rom enering ino he marke. Tese provisions escalaed prices and increased

enry barriers in he commercial insurance marke.13

Te sui alleges ha MFNclauses eecively made Blue Cross immune rom compeiion by guaraneeing

ha no oher healh insurer could secure a beter rae rom a conraced hospi-

al. According o he complain, Blue Cross has used MFN provisions or similar

clauses in is conracs wih a leas 70 o Michigans 131 general acue-care hos-


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pials, including many major hospials in he sae. Te complain alleges ha he

MFNs require a hospial eiher o charge Blue Cross no more han i charges Blue

Crosss compeiors, or o charge he compeiors more han i charges Blue Cross,

in some cases beween 30 percen and 40 percen. In addiion, he complain

alleges ha Blue Cross hreaened o cu paymens o 45 rural Michigan hospials

by up o 16 percen i hey reused o agree o he MFN provisions.

Similarly, he FC has increased enorcemen agains hospial mergers. In 2009

he FC ordered he Carilion Clinic o Roanoke, VA, o separae rom wo

recenly acquired compeing oupaien clinics. Absen his remedy, he acquisi-

ion would have led o subsanial lessening o compeiion and higher prices

or oupaien imaging and surgical services, higher premiums, and he risk o

reduced coverage or hese needed services.14And jus las monh he FC sued

ProMedica Healh Sysem, alleging ha is acquisiion o a rival hospial in oledo,

Ohio, will subsanially harm compeiion in he general acue-care inpaien hos-

pial services marke as well as he inpaien obserical services marke.15


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Integration standards for ACOs

Tis issue o he appropriae sandards o apply o collaboraion by healh care

providers is paricularly criical because an essenial par o healh care reorm

is he ormaion o accounable care organizaions ha provide incenives or

he various providers delivering a paiens care o cu coss by coordinaing

care, ocusing on prevenion, or oherwise improving qualiy o care. ACOs can

arguably raise some o he same concerns o permissible inegraion under he

healh care guidelines and hose guidelines may be a major impedimen o ACO

ormaion. As he AMA has observed, he curren clinical inegraion sandardspublished in he Saemens and he FC advisory opinions o dae will deer he

ormaion o ACOs. i he FC/DOJ sandards remain unalered, he ACAs

imporan inviaion o physicians o orm ACOs will be reduced o a mere ges-

ure.16As noed above, he FCs pas skepicism abou physician collaboraion

can be a signican obsacle o physician inegraion.

Tere is a recen, hopeully posiive sign ha he anirus enorcers are begin-

ning o recognize he need o ake a new approach o physician collaboraion. On

Ocober 5, 2010, he FC, HHS Oce o Inspecor General, and Ceners or

Medicare and Medicaid Services, or CMS, held a join workshop o discuss he

anirus challenges acing he ormaion o ACOs. A his even, FC Chairman

Jon Leibowiz saed, we wan o explore wheher we can develop sae harbors so

docors, hospials, and oher medical proessionals know when hey can collabo-

rae and when hey canno. Leibowiz also remarked, we are also considering

wheher we can pu in place an expedied review process or hose ACOs ha all

ouside o he sae harbors.17Tese saemens oer hope or changes in anirus

enorcemen and he creaion o a marke where healh care providers can eec-

ively collaborae o creae ACOs and deliver less-cosly and higher-qualiy care.

Numerous groups a he ACO hearing provided inpu on he need or increased

guidance or ACOs. As he earlier CAP repor noed, i is imporan or

physician-sponsored ACOs o be able o orm and ourish and he cos o he

anirus process poses a signican impedimen o hese venures. For physician-


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sponsored ACOs o be ormed eecively, he anirus agencies need o issue

new guidance clariying he sandards or evaluaing physician inegraion and

provider inegraion generally.

ACOs should be able o overcome he agencies radiional skepicism abou

inegraion. Te quesion he agencies ocus almos enirely onwheher here isadequae inegraionshould be a nonissue or ACOs. As Chrisi Braun, a lead-

ing healh care anirus atorney, observed, he crieria or he ormaion o an

ACOha i promoes accounabiliy or a paien populaion and coordinaes

iems and services and encourages invesmen in inrasrucure and redesigned

care processes or high qualiy and ecien service deliveryare very similar o

he sandards se by he agencies or deermining ha here is adequae clinical

inegraion.18Tus, here should be a presumpion ha an ACO is sucienly

inegraed, a leas o avoid he suggesion ha i may be per se illegal.

Tere are several oher suggesions o he process and sandards applied o ACOsha may rene he anirus process. Obviously, he process o he pas, wih

exhausive, ime-consuming, and expensive reviews, canno work i ACOs will

be ormed. In addiion, as he FC chairman and ohers have suggesed, here is

a signican need or sae harbors so rms can have a clear sense ha hey do no

ace anirus risk (indeed, i may be dicul or ACOs o ge unding i here is

anirus uncerainy). Here are our suggesions:

Te FC and he DOJ should adop a review process similar o ha o he

Naional Cooperaive Research and Producion Ac or review o ACOs. Te

NCRPA provides ha in cerain circumsances, companies ha are engaged in

cerain innovaive aciviies and wish o collaborae may le a proposal wih he

FC and he DOJ. Tis proposal is hen approved in a review process ha is

governed by rule o reason analysis, which makes i easier or organizaions o

be allowed o collaborae.19

Financial inegraion and clinical inegraion should be reaed similarly. Te

curren guidelines oer more sraighorward approval or healh care venures,

which have nancial inegraion. Tis preerence is oudaed, as consumers have

rejeced he limied orms o nancial inegraion, which oen resuled in ardu-ous preapproval requiremens. Tere is greaer ineres in broad orms o clinical

inegraion and he agencies should rea clinical inegraion in he same ashion

as nancial inegraion.


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Exend he healh care saey zones o cover all provider collaboraions. Te

guidelines provide saey zones ha explain ha venures wih less han a 20

percen marke share (or 30 percen i hey are nonexclusive) do no ace ani-

rus risk. Tese saey zones are currenly limied o physicians bu should be

exended o collaboraions beween hospials and oher providers.

Provide a saey zone or nonphysician providers such as pharmacies and ali-

aed healh care providers o collecively conrac wih an ACO. Allied healh

care providers such as pharmacies should play an imporan role in improving

he delivery o ecien healh care. Ye i sole eniies like communiy phar-

macies canno collecively orm neworks, ACOs may be le wih only being

able o conrac wih chain pharmacies. Permiting collecive negoiaion will

enhance access and compeiion.


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Concerns over provider

market power

Te mos dicul issue he agencies mus grapple wih in he ormaion o hese

ACOs is marke power, no inegraion. Since reorm has been enaced, some

commenaors and journaliss have raised concerns ha reorm may no succeed

because here are insances where here are powerul providers, primarily hospi-

als, and hese providers may use heir power o rapidly increase coss.20Tis raises

an imporan concern, which cerainly should be careully evaluaed by anirus

enorcers and regulaors.

Unorunaely, he FCs disproporionae ocus on atacking inegraion makes

hem somewha ill-prepared o grapple wih hese challenges. For example, he

31 cases brough agains physician-negoiaing groups would seem o provide

a oundaion o knowledge. Ye he vas majoriy o hese cases were pursued wih-

ou any analysis o marke power or compeiive eecs. Tese cases generally did

no provide any evidence o marke power. On he oher hand, he FCs recen

hospial merger cases and invesigaions did involve consideraion o wheher

a hospial possessed marke power and would provide guidance on wheher

hospial-sponsored ACOs migh raise compeiive concerns.

Tere have been some sudies o he issue o provider marke power. In lae 2009

and early 2010, he Massachusets atorney general conduced a sudy o rising

healh care coss.21Te atorney general compiled and analyzed daa rom ve

healh plans and 15 providers chosen o give an accurae represenaion o he

variey o healh care services in he sae. Te sudy ound large price variaion or

similar services wihin a single marke. Arguably, his price variaion did no corre-

lae wih qualiy o care; he sickness, complexiy, afuence, or age o he popula-

ion; or wheher he provider is an academic eaching or research aciliy. Te only

hing ha he sudy ound o correlae wih price was provider marke leverage.Te sudy suggesed ha large, inuenial providers use heir bargaining power o

demand price increases ha are no based on he acors lised above.


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Moreover, he sudy also ound ha healh care coss wen up because o hese

price increases, no because o increased uilizaion o healh care. Tere was also

evidence o a rend oward higher-priced hospials gaining more marke share

over lower-priced hospials, which he sudy suggesed indicaed ha he chances

he marke will correc isel wihou inervenion are slim. Te repor poins o

conracing pracices like paymen-pariy agreemens and produc-paricipaionprovisions o explain hese peculiariies o he Massachusets healh care marke.

Paul Ginsburg conduced a similar invesigaion o he eec ha concenraion

has had on eigh U.S. healh care markes in a sudy published by he Cener or

Sudying Healh Sysem Change.22Ginsburg, he presiden o he nonparisan

cener, looked a paymen raes across eigh healh care markes and compared

hem o each oher and o Medicare reimbursemen raes. Ginsburg ound signi-

can variaion in hospial and physician paymens across and wihin U.S. markes.

While he admited ha i is exremely dicul o measure qualiy, he ound i

implausible ha qualiy dierences alone could accoun or price discrepancies.He suggesed ha provider leverage was an imporan source o cos increases and

provided an example o how acquiring conracs wih all aneshesiology groups

could be used o drive up he cos o healh care.

Rober Berenson also recenly atemped o invesigae marke-power issues in

Caliornia.23Dr. Berenson, an insiue ellow a he Urban Insiue, conduced

approximaely 300 srucured inerviews as he basis or his sudy. He ound

ha mus-have hospials are able o charge wha hey wan or care, and here-

ore have marke power disproporionae o heir size. While he admited ha

he HMO movemen, which has signican prominence in Caliornia, may have

increased qualiy, he said i has mos cerainly driven up price, which is enirely

conrary o he inenion o he program. Berenson conended ha anirus

regulaion was ineecive a curbing provider marke power in he curren

healh care sysem.

Tese sudies have spurred a lively debae and criique. Some commenaors have

noed ha Berensons sudy was enirely based on inerviews wih healh care

payers and here was no examinaion o acual cos daa in a saisical or scien-

ic manner. Te anecdoes ell an ineresing sory bu he sudy needs a sron-ger empirical base.24Te atorney generals repor atemps a more disciplined

economeric approach bu some commenaors have posed criicisms. I does no

demonsrae he exisence o marke power rom a radiional anirus perspec-

ive. I does no use mulivariae analysis or longiudinal daa. For insance, i does


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no sucienly ake ino accoun eiher he addiional coss o very small, rural

hospials or he cos dierences beween a eaching hospial wih wo sudens

and one wih more han 500 sudens. In any case, hese repors rigger he need

or greaer discussion o he concerns over provider power.

Wha should be he response o enorcers o he concerns o provider marke power?

Firs, o he exen he concern is over ACO compeiion, i is criical ha he

agencies broaden he sandards or inegraion, as suggesed earlier, in evaluaing

proposed ACOs. I hospials dominae some markes, i is even more imporan

ha he agencies provide a clear pah or physician-sponsored ACOs o be ormed.

Te agencies should permi ACOs o qualiy based on clinical inegraion, no

jus nancial inegraion. Te curren inegraion anirus sandards may creae

obsacles o physician-sponsored ACOs and ha would reduce compeiive aler-

naives in ACO markes.

Second, he FC should ocus is enorcemen resources on marke power by

hospials and specialized physician groups. Te FC has done an admirable job

in reviving hospial-merger enorcemen in he pas several years. Recen cases

agains he Evanson/Norhwesern and Inova/Prince William hospial mergers

have demonsraed he imporance o anirus enorcemen in prevening he

creaion o marke power. A recen acion agains an acquisiion o wo oupaien

imaging ceners by Carilion Clinic, he dominan hospial sysem in Roanoke, VA,

demonsraes how even smaller acquisiions o oupaien clinics may be anicom-

peiive. Tese clinics were poenial compeiors o he hospial and heir acquisi-

ion harmed compeiion.

Te agencies clearly need o ocus greaer atenion in hose siuaions where

physicians may possess marke power. Te DOJ and he FC have generally

overlooked his areahe mos recen enorcemen acion agains a group o

physicians or exercising marke power was 1994. In ha case, he FC chal-

lenged join venures by wo groups o pulmonologiss ha harmed he home

oxygen-equipmen marke by bringing ogeher more han 60 percen o he

pulmonologiss who could make reerrals or his equipmen.25Tis ype o reer-

ral power by large groups o specialiss can raise prices or many procedures. I isineresing o observe ha he case was brough under Secion 5 o he Federal

rade Commission Ac, which declares illegal unair mehods o compeiion.

Te agencies should use heir ull range o powers including he FCs unique

auhoriy under Secion 5.


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Anirus enorcemen is an imporan soluion bu a limied one. Te DOJ and

he FC have limied resources. In addiion, anirus enorcemen does no break

up monopolies or oligopolies ha have been legally acquired nor does i resric

much o heir exercise o marke power.26While radiional anirus enorcemen

should absoluely remain par o he soluion, we mus also look o legislaive

xes and innovaive marke reorms like ACOs o address he poenial exercise omarke power. Tere are several examples worh considering.

Inspired a leas parially by he Massachusets atorney generals repor,

Massachusets passed a law in Augus 2010 aimed a conrolling healh care coss.27

Te law requires he Division o Healh Care Finance and Policy, or DHCFP, o

encourage payers and providers o adop bundled paymen arrangemens raher

han ee-or-service arrangemens. Te goal is o implemen pilo bundled-pay-

men programs in 2011. Te law exends DHCFPs abiliy o require providers

o submi sandardized daa abou heir coss and paymens. I requires insurers

o le all new rae increases wih he commissioner o insurance and he commis-sioner is direced o disapprove such increases i hey are excessive, inadequae,

or unreasonable in relaion o he benes charged. Perhaps mos imporanly, i

requires ha provider neworks wih 5,000 or more enrollees oer limied-nework

or iered-nework plans. Te base premium or his plan mus be a leas 12 percen

lower han ha o he carriers mos acuarially similar plan ha does no include

such a nework. Tere are also some specic provisions in he law ha ensure ha

he iered or limied neworks will engender cos savings. aken ogeher, hese

provisions may make some real impac on conaining price increases.

Ginsburg also oers a number o suggesions or conrolling coss as par o his

sudy. He breaks he suggesions down ino wo caegories: a marke approach

and a regulaory approach. In he marke approach, he goal is o provide mecha-

nisms ha encourage individuals o obain lower cos services. Te verical

inegraion o he ACO model provides consumers wih an undersandable

comprehensive cos o care ha will hen be easier o compare wih oher provider

opions. In he regulaory approach, he governmen may esablish a common

paymen mehod across public and privae payers and se a ceiling on he amoun

ha providers can charge insurers. Maryland, or example, uilizes an all-payer rae

seting or is hospials.

Proessor im Greaney has some specic recommendaions o address some o

he possible marke-power problems posed by ACOs.28He encourages CMS no

o ceriy ACOs ha are likely o inhibi he creaion o compeing ACOs in he


22/26


same marke. He recommends a requiremen ha ACOs be ransparen on boh

cos and qualiy measures, and says ACOs should be resriced rom adoping

mos avored naion clauses in heir conracs wih insurers. He also admis ha

here will be some locaions where he creaion o compeiive ACOs is jus no

easible, and in hose locaions he encourages CMS o consider regulaory mea-

sures such as direcly capping premium increases.

Blue Shield o Caliornia, in is commens a he ACO workshop, oered sugges-

ions or improving ACO compeiion ha ocus on disclosure.29Te organizaion

suggess ha ACOs should be required o allow all is conraced payers o pub-

licly share qualiy, service, and aggregaed cos inormaion by individual provider

or every provider represened by he ACO. In addiion, Blue Shield suggess ha

payers can use he ACOs claims daa o monior cos and qualiy. Finally, he group

suggess ha an ACO be prevened rom negoiaion on an all-or-nohing basis.

All o hese recommendaions on poenial regulaion pose complex issues. Iis imporan o recognize ha he ulimae goal o he Aordable Care Ac is

improved access o improved healh care delivery. In assessing he roles o ACOs

and poenial regulaion, here are imporan radeos o be made.


23/26


Endnotes

1 in un sa, anr nrmn ar bwn wagn: Fra tra cmmn, r Ftc, an Anrdvn darmn J, r doJ. B agnav jrn vr a ar g doJ a jrn vr a nrr. Wr aa bwn w rganzan by man a mx aran agrmn.

2 Fr w xam arng, : trmnan in-va p by inran cman, avaab a ://nrgy-mmr..gv/arng/arnga.ax?Nwid=7100 ;

F cmm harng - Arng inran Mar Rrm nNana ha Rrm, avaab a ://.na.gv/ar-ng/arng/?=69284-5056-9502-58-72176a828.

3 Fr r ar, rvr ar n, a,

yan, arma, nr, an a r nva anrganzan nvv n ry vrng a ar rv an.

4 Fr a vry g anay Aco m an nwrgary ang, : dga A. hang, cnrngAnab car organzan: sm praa obrvan a Nx py, Bn, an law, Health Law Reporter19(25) 2010); dga A. hang, Anab car organzanRgan an enrmn: crna r s?, Health LawReporter19 (37) (2010).

5 The Patient Protection andAordable Care Act, pb law 111-148,s. 3022, 111 cng., 2 . (Mar 23, 2010).

6 tma l. Grany, t Arab car A an cmnpy: An r pab?, Oregon Law Review, rmng,avaab a ://rn.m/abra=1680115.

7 The Patient Protection andAordable Care Act.

8 ib.

9 s Jy Fr an dav cr, Avng Anab an A-rab car: ky ha py c Mv ha carsym Frwar (Wangn: cnr r Amran prgr, 2010)avaab a ://www.amranrgr.rg/ /2010/12/a_rr.m.

10 Fr an cr, Avng Anab an Arab car.

11 ib.

12 sara samn cmmnr crn A. Varny on Rv ha car Gn, avaab a ://www..gv/b/aar/nryg/y/varny.m.

13 U.S. v. Blue Cross Blue Shield o Michigan, ca N. 10-v-14155 (e.d.

M. 2010).

14 In the Matter o Carilion Clinic, Ftc F N. 081 0259 (2009).

15 In the Matter o ProMedica Health System, Inc., d N. 9346 (2011).

16 samn Amran Ma Aan Fratra cmmn, cnr r Mar & Ma srvan o inr Gnra darmn haan hman srv, avaab a ://www.ama-an.rg/ama1/b/a/mm/399/a-mmn-272010..

17 Rmar Ftc carman Jn lbwz a prar r dvry,Ftc/cMs Wr n Anab car organzan, tay,obr 5, 2010, avaab a ://www..gv//wr/a//bwz-rmar..

18 cr Bran, cna ingran: t Baanng cmnan ha car p,Competition Policy International10 (1)2010, avaab a ://www.mnynrnana.m/na-ngran--baanng--mn-an-a-ar-/ .

19 Fng a Nfan unr NcRpA, avaab a ://www.j.gv/ar/b/gn/nra.m.

20 svn parn, ha car dmma: cmn r cabra-

n?, The Washington Post, Nvmbr 23, 2010, avaab a ://www.wangn.m/w-yn/nn/ar/2010/11/23/AR2010112306194.m; Rbr par, cnmr R Fara ha law sr Mrgr, The New York Times, Nvmbr 20,2010, avaab a ://www.nym.m/2010/11/21/a/y/21a.m.

21 o Arny Gnra Mara cay, examnan hacar c trn an c drvr (2010), avaab a ://www.ma.gv/cag//aar/fna_rr_w_vr_an-_gary..

22 pa B. Gnbrg, W Varan n ha an pyan paymnRa evn prvr Mar pwr (Wangn: cnr rsyng ha sym cang,2010), avaab a ://www.ang.m/coNteNt/1162/.

23 Rbr A. Brnn, pa B. Gnbrg, an N kmr, un- prvr c n carna Fraw cang

ha Rrm, Health Aairs 29 (4) (2010).

24 Mg Grn-cavr an Grm irav, A crq Rnpban n prvr Mar pwr (Wangn: cmalxn, 2010), avaab a ://www.aa.rg/aa/nn/2010//100410-rq-rr.; pa dryr, Anay Ar-ny Gnra Rr t examnan ha car c trnan c drvr, Jn 17, 2010, avaab a ://www.man.rg/AM/tma.m?sn=MhA_Nw1&ma=/cM/cn-nday.m&cnnid=11220.

25 In the Matter o Home Ox ygen & Medical Equipment Co., et al, 118F.t.c. 661 (1994) (ang nr sn 5 jn vnr 13mng mng n carna w rm a jn vnrnvv n y m xygn an r ra maqmn, w n 60 rn mng n rvan ggra ara. Ba vnr n ag rnag mng n ara, Ftc ag, aw a gan mar wr vr rvn

xygn an n r m, an ra a barrr aganr w mg r a rv ( .., rg an rrraby wnr-mng an rng naby anrxygn r ban rrra rm mng), rbyrng mn an rng gr nmr r).
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24/26


26 In the Matter o Home Ox ygen & Medical Equipment Co., et al., 118F.t.c. 661 (1994) (ang nr s n 5 jn vnr 13 mng mng n carna n y m xygn an r ra ma qmn. Ba vnr n 60 rn mng n rvanggra ara, Ftc ag, aw a ganmar wr vr rvn xygn an n rm, an ra a barrr agan r w mg r arv (.., rg an rrra by wnr-mngan rng naby anr xygn r banrrra rm mng), rby rng mn anrng gr nmr r).

27 An Act to Promote Cost Containment, Transparency, and Efciency inthe Provision o Quality Health Insurance or Individuals and SmallBusinesses, Ag 10, 2010, avaab a ://www.magar.gv/law/snlaw/A/2010/car288.

28 tma Grany, Anab car organzantFr n Ra, The New England Journal o Medicine 364 (1)(2011), avaab a ://www.njm.rg///10.1056/NeJM1013404#=ar.

29 B s carna, cmmn Rang Wr RgarngAnab car organzan, Nvmbr 4, 2010, avaab a://www..gv//mmn/a/101104b..
http://www.malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter288http://www.malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter288http://www.nejm.org/doi/full/10.1056/NEJMp1013404#t=articlehttp://www.nejm.org/doi/full/10.1056/NEJMp1013404#t=articlehttp://www.ftc.gov/os/comments/aco/101104bsc.pdfhttp://www.ftc.gov/os/comments/aco/101104bsc.pdfhttp://www.nejm.org/doi/full/10.1056/NEJMp1013404#t=articlehttp://www.nejm.org/doi/full/10.1056/NEJMp1013404#t=articlehttp://www.malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter288http://www.malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter288


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Acknowledgement

Prepared wih he suppor o he Peer G. Peerson Foundaion.


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The Center for American Progress is a nonpartisan research and educational institute

dedicated to promoting a strong, just and free America that ensures opportunity

for all. We believe that Americans are bound together by a common commitment to

these values and we aspire to ensure that our national policies reflect these values.

We work to find progressive and pragmatic solutions to significant domestic and

international problems and develop policy proposals that foster a government that

is of the people, by the people, and for the people.

Making Health Reform Work

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