Improving Incentives Newsletter: Sorting Out the Antitrust Issues in Clinical Collaborations

Improving Incentives Newsletter: Sorting Out the Antitrust Issues in Clinical Collaborations

A Quarterly Publication of HCI3 Volume 1, Issue 2  |   July 2011


A Lawyer's Brief
Sorting Out the Antitrust Issues in Clinical Collaborations 

By Robert F. Leibenluft


Unlike most regulatory schemes that govern health care, the antitrust laws are intentionally broad so as to leave room for entities to adopt innovative ways to produce and market their services. This lack of clear "rules of the road" can result in providers being concerned that their efforts to form clinically integrated collaborations may run afoul of antitrust scrutiny. In fact, however, the antitrust enforcers have provided sufficient guidance so that most providers easily can determine whether their conduct raises few antitrust issues, rings antitrust alarms, or, if it falls in between, what factors will be important in the antitrust review. Moreover, a recent proposed statement from the Federal Trade Commission and the Department of Justice on Medicare Accountable Care Organizations (ACOs) offers guidance to providers regardless of whether they intend to participate in an ACO.

Some Antitrust Basics
The antitrust laws are aimed at anticompetitive conduct that can raise prices, reduce quality, or eliminate choice for consumers. Thus, if clinical collaborations do not affect the prices that providers charge patients or health plans, they are unlikely to raise antitrust concerns. Efforts by providers to share clinical guidelines or best practices, improve services, or reduce costs, for example, generally will receive an antitrust green light.

At the other end of the spectrum are arrangements considered under antitrust laws to almost always harm competition and that have no likely redeeming value. These arrangements include so-called "naked" agreements by sellers to price their services or divide a market. Thus, for example, providers who are otherwise competitors and who do nothing more than jointly negotiate with health plans will be quickly condemned as engaging in illegal price-fixing. There is no need for the antitrust enforcers to prove that the providers had a high share of the market; nor can the providers successfully defend their conduct by claiming they had good intentions.

Financial and Clinical Integration
Clinical collaborations that involve joint negotiations with health plans fall into a gray zone that require more careful antitrust assessment. Antitrust enforcers will determine whether, in fact, the providers are engaged in something more than simple price-fixing. In this step, the antitrust enforcers consider whether the collaboration has the potential to achieve significant improvements in health care quality or efficiency beyond what they likely would achieve on their own.

One way of evaluating this scenario is to ask whether the providers are financially integrated, meaning do they share the financial risk of achieving their goals. If they do, the assumption is that they will have sufficient incentive to adopt processes that at least have the potential for significant improvements. Providers paid on a capitated basis, for example, or who are subject to a substantial withhold to be paid only if they meet certain targets will be viewed as financially integrated.

The antitrust enforcers also recognize that even if providers don't take on financial risk, they are not engaged in price-fixing if they are clinically integrated and employ a broad range of mechanisms to improve care or efficiency. While there is no simple menu of what providers must do to establish that they are clinically integrated, such efforts will typically involve developing an infrastructure (such as having dedicated staff and health information technology) to monitor care processes and outcomes. They also will use various mechanisms such as report cards, financial incentives, and membership requirements to ensure compliance with clinical guidelines.

Market Power Assessment
Even if a provider collaboration is financially or clinically integrated, it may still be challenged under the antitrust laws if it enables the providers to exercise market power, meaning raising prices above a competitive level. This inquiry is similar to the examination of a merger among competitors. Mergers often create efficiencies, but can still raise antitrust concerns if prices rise because purchasers have few alternatives. Provider collaborations that include less than 30% to 35% of the available providers in each specialty are unlikely to raise market power concerns. As the market share increases, so do the antitrust risks. The antitrust enforcers recognize that in non-urban markets, a collaboration often may involve high market shares in certain specialties. The antitrust concerns can be reduced if the collaboration is non-exclusive, meaning that members of the collaboration are not precluded from contracting directly with health plans without the collaboration's involvement.

More guidance is available for those forming ACOs and for those who aren't. In part two of this article, we will describe how a recently issued proposed statement from the antitrust enforcers offers guidance to providers regarding their clinical collaborations, whether or not such efforts actually involve participation in the Medicare Shared Savings Program for ACOs.

Robert F. Leibenluft is a partner in the law firm of Hogan Lovells, in Washington, D.C., and a member of HCI3's board of directors. He can be reached at [email protected].