Antitrust Markets and ACOs

David Argue, John Gale, May 12, 2011

The Affordable Care Act signed into law in March 2010 has promised that the concept of accountable care organizations (“ACOs”) will transform how medical care is provided and paid for in the United States. As befits their role as enforcers of the antitrust laws, the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) have raised concerns that certain ACOs may reduce competition and harm consumers through higher prices and lower quality of care.

To address that issue, the antitrust Agencies propose a “shares” screen in their recently published draft Policy Statement to identify and evaluate those ACOs that may be problematic. The draft Policy Statement identifies three ranges of shares: one level above which an automatic review by the antitrust Agencies is triggered before participation in the Medicare Shared Savings Program is permitted, one below which a safety zone is in place, and a middle range of shares for which a proposed ACO has the option to request an antitrust review. Thus the share calculations described in the draft Policy Statement are a critical aspect of achieving the antitrust clearance needed for an ACO to participate in the Shared Savings Program.

Calculating shares is a common aspect of an antitrust analysis, though usually in the context of properly defined antitrust product and geographic markets. The draft Policy Statement uses the concepts of “Common Service” and “Primary Service Area” for determining shares, but it avows that these are not necessarily the same as antitrust product and geographic markets. Indeed, court decisions have affirmed that service areas and geographic markets are not necessarily the same, and at least one decision states that they may even be thought of as opposite concepts.

Nevertheless, a great deal of attention is paid in the draft Policy Statement regarding the details of how the Common Service and PSA are to be determined and how shares within PSAs are to be calculated. Shares must be calculated for each Common Service in each participant’s PSA, meaning that, in all likelihood, an ACO will not have a single, simple share but rather, in many cases, an ACO will likely have dozens of shares. Even an ACO with only two parties and one Common Service will be required to make two share calculations. If any of these shares falls above the 50 percent threshold, then an antitrust review by the FTC or DOJ is triggered.

Notwithstanding the draft Policy Statement’s disavowals, it seems likely that the Agencies could begin to adopt Common Services and PSAs as antitrust markets more frequently in their full-fledged competition analyses as they become accustomed to reviewing submitted materials that present shares of Common Services in PSAs. Consequently, it makes sense to consider these concepts and the related calculations more carefully.

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