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Antitrust Concerns Greatly Affect Healthcare Reform

The Sherman Act is a key federal law which is comprised of two sections: Affect Healthcare Reform

Section 1, prohibits concerted action which unreasonably restrains competition; and Section 2, generally prohibits monopolies.

For there to be a violation of Section 1, there must be an agreement and it must unreasonably restrain competition. For there to be an agreement, there must be more than one economic unit involved. That is, there can be no such agreement by one economic unit with itself.

For example, generally speaking, shareholders in the same corporation are, for antitrust purposes, legally incapable of engaging in illegal concerted action together if they share substantial economic risk. They are generally considered to be part of a single economic unit. Conversely, members of two or more competing economic units, separate professional corporations, for example, may not agree to a whole host of things, because such agreements would violate one or more antitrust laws.

 

Some agreements are considered to be so egregious that they need not even restrain competition. The mere fact that such an agreement has occurred is enough, and there is no defense. This is by no means a complete list or a complete description of the antitrust laws but describes some types of activities that will violate antitrust laws.

 

Illustrations

Case #1: A payer approaches you and several of your colleagues, who are competitors. The payer gives you a contract and fee schedule, which you review with your colleagues. Though the payer recognizes that you are not a physician group practice, it would like to deal with just one of you for contracting purposes. You choose one of you to represent the group of you and seek changes in the contract, including the fee schedule.

Impression: The Sherman Act has been violated. Since you and your colleagues are competitors and are not members of a single professional corporation through which you conduct all or substantially all of your professional practices, you may not discuss fees among yourselves, and you may not appoint someone to act as the voice of the group. In addition to the price-fixing described above, if you decided together not to contract with the payer, you would have engaged in a group boycott.

The violations can be avoided by properly structuring a formal group and adhering to certain rules in negotiating with payers. In scrutinizing activities of a physician organization, one of the key things antitrust enforcement authorities will examine is the degree of the organization’s economic integration, the degree to which economic risk is shared among the shareholders. The level of integration is key in determining whether the organization is a single economic unit or whether it is comprised of two or more economic units.

Determining whether a physician organization is sufficiently integrated is often, however, an extremely difficult task. The law changes and is very fact-specific. The FTC looks to such things as

1) whether the organization is capitated;

2) the extent services are centralized in the organization; and

3) accountability of the shareholders to the organization through such things as utilization management, quality assurance, and peer review.

A Good Trend

Healthcare reform is causing the Department of Justice and other regulators to do two nearly unprecedented things in the history of anti-trust law: innovate and cooperate. I’m exaggerating, but the truth is that healthcare reform has lit a huge fire under the…ummm…butt of government regulators to find ways to facilitate competing healthcare providers to “come together” for the sake of reducing cost and improving quality.

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Several years ago, the Department of Justice has lightened its almost unworkable antitrust restrictions by:

(1) expanding the rule of reason@ analysis for determining whether the antitrust laws have been breached

(2) expanding the notion of shared financial risk beyond mere capitation; and

(3) expanding the role of the messenger. Though the role of so-called Messenger Model organizations (e.g. IPAs) provide to be a failure, the fact that the DOJ would consider other ways of creating “substantial economic risk” was shocking. And now, what is even more shocking is that the DOJ recently:

(1) promised to view all ACO proposals essentially more leniently, and

(2) agreed in a joint statement with the HHS Office of Inspector General (which has primary enforcement authority on such things as Stark and Anti Kickback violations) to cooperate with each other to facilitate the development and roll out of ACOs.

Rule of Reason

For those who appreciate a little more depth, possible antitrust violations are analyzed by governmental authorities using either per se or rule of reason analysis. Violations considered to be per se violations are indefensible, regardless of possible good intent or even positive market effects.

Examples include:

(1) two or more physicians agreeing to charge specific fees for certain procedures in their respective, independent practices.

(2) two or more physicians agreeing not to do business with a particular HMO.

In contrast, the rule of reason analysis requires enforcement authorities to probe deeper into the investigated arrangement to see if the arrangement furthers or conflicts with the principles underlying the antitrust laws. This type of analysis gives the investigated parties an opportunity to justify their arrangement; per se analysis does not.

The revised Statements of Antitrust Enforcement Policy in Health Care issued several years ago by the DOJ, expanded the application of the rule of reason analysis to situations previously viewed as per se violations. For instance, a provider network has traditionally had to be financially integrated through capitation or withholds to receive rule of reason analysis, and discounted fee for service arrangements with the network sent many physicians to antitrust defense attorneys during enforcement actions based on the network=s negotiations of other payment arrangements. And now, with healthcare reform, they want to go further.

Shared Financial Risk

The Statements also expanded the notion of shared financial risk, traditionally the cornerstone of compliance.

The original guidelines identified only two examples that met the requirement:

(1) capitation and

(2) significant withholds. The revised guidelines expand the shared financial risk concept by looking at other things to satisfy the requirement.

Now, risk sharing may include

(1) the use of substantial financial penalties or rewards based on overall costs or utilization, and

(2) the use of global or per case fees. Even more impressive is the fact that, instead of substantial financial risk, a network may pass muster if it demonstrates substantial clinical integration.

 

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Substantial clinical integration can be established by demonstrating that the network is likely to produce significant efficiencies@ via an active, ongoing program to evaluate and modify practice patterns by the physicians and create a high degree of [physician] interdependence and cooperation. Examples provided include utilization review, physician credentialing, investing significant financial and human capital, and clinical integration.

 

Additionally, if the network has risk and non-risk contracts, the new guidelines will permit joint pricing if the efficiencies from the risk business spill over into the non-risk business.

This is a boon to most networks since they often have both risk and non-risk contracting opportunities. Though the changes are not an antitrust home free pass, they do free physicians from strict capitation only arrangements, which have been elusive in many practice areas.

Conclusion

Over the years, the anti-trust law has been on a mudslide slow rate of change. The recent healthcare reform debate and innovations have accelerated at least the outspoken willingness of officials to ease up restrictions. But the proof is in the pudding since officials continue to challenge proposed combinations which purport to reduce costs and improve quality. In their defense, officials said they would be more open-minded. They didn’t say they’d be stupid.

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