ABA Washington Health Law Summit

Consolidation or Coordination? FTC and DOJ Guidance on the Future of ACOs

Alexis James GilmanAssistant Director, Mergers IV Division, Bureau of Competition

Federal Trade Commission

Peter J. MucchettiChief, Litigation I Section, Antitrust Division

United States Department of Justice

Kenya S. WoodruffPartner, Co-Chair – Healthcare Practice Group

Haynes and Boone, LLP

© 2015 Haynes and Boone, LLP© 2015 Haynes and Boone, LLP

Kenya S. WoodruffHaynes and Boone LLPCo-Chair, Healthcare Practice Group

© 2015 Haynes and Boone, LLP

© 2015 Haynes and Boone, LLP

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Agenda

• ACO Overview• Increased consolidation and coordination• Overview of DOJ enforcement in the health

insurance industry• Overview of FTC enforcement in the provider

industry• Scenarios

© 2015 Haynes and Boone, LLP

© 2015 Haynes and Boone, LLP

Overview of ACOs

An accountable care organization (ACO) is a group of doctors, hospitals, and other health care providers who join together voluntarily to give coordinated care to their Medicare patients, and who can share in the savings achieved as a result of their coordination.• The Medicare Shared Savings Program rewards ACOs

that lower their health care costs while meeting quality of care performance standards.

• ACOs split the shared savings that they generate with Medicare.

© 2015 Haynes and Boone, LLP

© 2015 Haynes and Boone, LLP

Overview of ACO structure

Providers/Suppliers

(All Providers under a Participant’s TIN)

Participants

(Based on TIN)

ACO

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© 2015 Haynes and Boone, LLP

ACO Payment Models

• Although Medicare will continue to offer a Fee-for-Service program for patients, there are two types of payment models available to the ACOs.– One-sided model– Two-sided model

• The main differences between these two types of models are the degree of risk involved and the potential savings available.

See Methodology for Determining Shared Savings and Losses under the Medicare Shared Savings Program issued by CMS in November 2012.

© 2015 Haynes and Boone, LLP

© 2015 Haynes and Boone, LLP

ACO

D-2154516

ACO Participants(e.g., Contracted

Physicians)

Medicare

Hospital ACO Structure

Hospital

Participation Agreements

MSSP Agreement

Shared Savings

Contractual Relationship

Equity Interest

Key

© 2015 Haynes and Boone, LLP

© 2015 Haynes and Boone, LLP

ACO

D-2154516

ACO Participants(e.g., Physicians)

Medicare

Independent Physician ACO Structure

Physicians

Participation Agreements

MSSP Agreement

Shared Savings

Contractual Relationship

Equity Interest

Key

Third-Party Investors

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© 2015 Haynes and Boone, LLP

Next Generation ACO

• Greater access to home health, telehealth and skilled nursing facilities

• Opportunities for beneficiaries to receive benefits for receiving services from the ACO and certain affiliated providers

• A process to allow beneficiaries to confirm their relationship with an ACO provider

• Compensation for attainment as well as improvement

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© 2015 Haynes and Boone, LLP

Next Gen ACO Payment Models

• Normal FFS Payment

• Normal FFS Payment + Infrastructure Payment

• Population-Based Payments

• Capitation

© 2015 Haynes and Boone, LLP

© 2015 Haynes and Boone, LLP

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Increased Consolidation and Collaboration

• Causes– Uncertainty of reimbursement models– Greater emphasis on continuum of care– Need for funding to foster the technology and staffing innovations

necessary to be competitive

• Effects– “Bigger is better” mentality– Increased efforts to achieve greater network adequacy through

joint ventures, collaborative relationships, mergers and acquisitions

– Rural and community hospitals are struggling– Technology for better data analytics and predictive analysis

How FTC and DOJ Guidance Affects the Future of Mergers

and ACOs

Peter J. MucchettiChief, Litigation I Section

Antitrust DivisionUnited States Department of Justice

December 7, 2015

The views expressed in this presentation are the author’s and do not purport to reflect those of the United States Department of Justice

“Because health care is fundamental to our lives, we share an interest in maintaining and fostering competitive markets that will keep prices in check, improve quality, and spur innovation.”

William J. Baer, Assistant Attorney General, Remarks as Prepared for the Department of Justice and Federal Trade Commission Workshop on Examining U.S. Health Care Competition, February 25, 2015

WellPoint-Amerigroup (2012) Humana-Arcadian (2012) BCBS of Montana-New West (2011) BCBS of Michigan-Physicians Health Plan of

Mid-Michigan (2010) UnitedHealth Group-Sierra Health Services

(2008) UnitedHealth Group-PacifiCare (2005) Aetna-Prudential (1999)

DOJ Challenges to Health Insurance Mergers

WellPoint proposed to acquire Amerigroup for approximately $5 billion.

The merger would have substantially lessened competition in the provision of Medicaid managed care plans in Northern Virginia.

WellPoint and Amerigroup were the only two providers of Medicaid managed care plans in Northern Virginia.

The companies addressed the Department’s concerns by divesting Amerigroup’s Virginia operations

WellPoint-Amerigroup

Humana sought to acquire Arcadian Substantial concentration in 45 counties in

Arizona, Arkansas, Louisiana, Oklahoma, and Texas

Product market – no broader than the sale of Medicare Advantage plans

Settlement required divestitures in 51 counties

Settlement requires acquirer to have substantially the same access to healthcare providers

US v. Humana and Arcadian

Hospitals owned New West, a health insurer New West was one of only two significant

competitors to Blue Cross in commercial health insurance in four parts of Montana

Hospitals collectively agreed to buy health insurance only from Blue Cross for six years 

Hospitals received two seats on Blue Cross’ board if they did not compete with Blue Cross

The agreement effectively eliminated New West as a competitor.

US v. Blue Cross of Montana

Divestiture of New West’s remaining commercial health-insurance business

Hospital owners required to enter three-year contracts with the acquirer on substantially similar terms to New West’s terms

Blue Cross must provide notice before using exclusive contracts with health-insurance brokers, or exclusive or most-favored-nation provisions in agreements with health-care providers

Blue Cross of Montana Settlement Provisions

How FTC and DOJ Guidance Affects the Future of Mergers and ACOs

Alexis James GilmanAssistant Director

Mergers IV Division, Bureau of CompetitionFederal Trade Commission

13th Annual Washington Health Law SummitDecember 7, 2015

Any views expressed are the views of the presenter and do not reflect those of the Federal Trade Commission or any individual Commissioner

Provider Merger Enforcement Actions

1. Evanston/Highland Park (2004-2008) – IP GAC; order (conduct relief)2. Inova/Prince William (2008) – IP GAC; abandoned3. Carilion/CSE/CAI (2009-2010) – advanced OP imaging, OP surgical services;

consent order (divestitures)4. ProMedica/St. Luke’s (2011-present) – IP GAC, OB; PI, divestiture5. OSF/Rockford (2011-2012) – IP GAC, PCP services; preliminary injunction6. Phoebe Putney/Palmyra (2011-2015) – IP GAC; consent order7. Reading/SIR (2012) – 4 IP and OP surgical services; abandoned8. Renown Health (2012) – adult cardiology services; consent order9. Capella/Mercy (2013) – hospitals; abandoned prior to suit10. St. Luke’s/Saltzer (2013-present) – adult PCP services; divestiture order11. CHS/HMA (2014) – IP GAC; consent order (divestitures)12. Surgery Partners/Symbion (2014) – OP surgical services; consent order

(divestiture)13. Keystone/Ortho. Assoc. (2015) – ortho physician services; consent order14. Cabell/St. Mary’s (filed 2015) – IP GAC, OP surgical services; TBD

St. Luke’s/Saltzer – Overview

• Health system acquisition of physician group in Nampa, Idaho

• Private plaintiff suit, follow by FTC and Idaho suit• Product market: adult PCP services• Market share/structure: 80% (24 PCPs), 3-2• Key Issues

– Geographic market: Nampa v. Nampa/Boise– Efficiencies analysis and the ACA– Vertical foreclosure of competitor

ACOs and Antitrust

• Antitrust agencies recognize potential ACO benefitsCMS MSSP ACO Final Rule – Recognizes antitrust review of ACO formation and

conduct• DOJ/FTC antitrust statement of enforcement policy

– Does not apply to mergers– Expedited review available– “Rule of reason” analysis for ACOs in MSSP– Safe harbors based on market shares

ACOs and Antitrust

• Potential red flags for ACOs with high shares– Prevent steering/tiering; MFNs– Tying sales of ACO services to purchasing services

outside ACO– Exclusivity that inhibits payer contracting outside ACO– Limiting payer’s ability to share info with enrollees on

cost, quality, efficiency, and performance• Early Results

– Hundreds of MSSP and commercial ACOs– Only two ACOs have requested antitrust review– No FTC enforcement actions to date

Hot Topics

• CONs – Commissioner Ohlhausen speech– FTC staff comment re: North Carolina CON regs.– FTC/DOJ statement re: Virginia COPN

• COPA Comment Letters– New York legislation– Oregon legislation– Tennessee Dep’t of Health re: COPA– Virginia Dep’t of Health re: Cooperative Agrmts.

Recent Development

• FTC challenges Cabell/St. Mary’s merger• According to the Administrative Complaint:

– Only two hospitals in Huntington, WV– Product market: IP GAC, OP surgical services– Geographic market: Four-County Huntington Area– Market shares/structure: 75% combined share– Merger would eliminate price and non-price competition– Entry is unlikely to be timely or sufficient– Efficiencies largely not cognizable– Temporary conduct remedies (AVC, LOA) are insufficient – WV rate review does not prevent price increases

Take-Aways

• Potential harm assessed in individual services lines and cluster of services

• Health plans don’t always complain; complaints do not always amount to antitrust concern

• Health plan, community support is not always outcome determinative

• Consummated mergers can and may be challenged• Efficiency arguments taken seriously and can succeed• ACA is not an antitrust defense• Strong preference for structural relief• FTC likely to be active in COPA matters

Scenario Assumptions

• The hospitals are all in the same geographic market• Although the purpose of the entity was to contract

for MSSP, the resulting entity is attractive to private payors as well

• The value of the ACO is the data that it has collected and created through the use of data analytics technology

• The relationship captures at least 75% of the market

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Scenario #1Single ACO

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Cheddar General Hospital

Gouda General Hospital

ACO

Blue General Hospital

Scenario #2 Coordinated Care Agreements

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Cheddar General Hospital

Gouda General Hospital

ACO

Blue General Hospital

Scenario #3Merged Entity; Wholly-owned ACO

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Cheddar General Hospital

Gouda General Hospital

ACO

Blue General Hospital

QUESTIONS

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