Tasneem Chipty, May 12, 2011
Health care markets involve a complex interaction of facilities, physicians, and health plans to deliver patient care. Under ideal circumstances, the forces of competition would lead inevitably to appropriate, high quality patient care at low prices. The competitive process, however, requires sufficient flow of information and aligned incentives. Absent these conditions, the competitive process can (and has been known to) break down. Indeed, the last decade has seen a dramatic increase in the United States’ cost of health care as a percentage of gross domestic product. Health care commentators trying to understand this growth have pointed to increases in the price and use of certain services, which they attribute to a number of factors such as an aging population and at times, use of unnecessary care and insufficient competitive pressure. To address some of these issues, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 encourage providers to better coordinate patient care through competitor collaborations called Accountable Care Organizations (“ACOs”).
By incenting otherwise independent health care providers (through the Medicare Shared Savings Program) to better coordinate on patient care, the policy goal is to improve the quality and reduce the cost of health care. Unchecked, however, the same policy could facilitate competitor coordination on pricing and other aspects of behavior that may result in unintended and potentially undesirable effects. To address this concern, the Department of Justice and Federal Trade Commission (“the Agencies”) have set forth a proposed antitrust policy statement regarding ACOs that describes a rule of reason approach to balance potential harm to competition from competitor collaboration in the form of an ACO with potential pro-competitive benefits to consumers.
While it is too early to know what type of antitrust scrutiny ACOs will receive in practice, the Agencies’ Proposed Policy contains some important structural guidance. In particular, the Proposed Policy contains behavior requirements to which ACO participants must adhere along with three tiers of antitrust review. Among them is the creation of safe harbors that appear to mirror the three tiers of antitrust review contained in the Agencies’ Merger Guidelines.
From a policy perspective, it is unclear whether the ACO review should be more or less stringent than the merger review process. On the one hand, one might expect the ACO review to be more stringent because of the financial incentives to participate in the Medicare Shared Savings Program. On the other hand, one might expect the reverse because, all else equal, the added behavioral stipulations by design help ensure that formation of an ACO presents less competitive risk than does a merger of the participants to a fully integrated firm.
This article uses numerical simulations to compare the proposed thresholds for ACO antitrust review to those established in the Merger Guidelines. For relatively unconcentrated markets, whether the ACO review process is more stringent than the merger review process depends on how restrictive the behavioral requirements are for the ACO participants. If they are not binding, the numerical simulations suggest that the ACO review process should be no more stringent than the merger review process for relatively unconcentrated markets and less stringent in relatively more concentrated markets. Otherwise, the ACO review may be more restrictive for some scenarios.