Thomas H. Lee, M.D., Lawrence P. Casalino, M.D., Ph.D., Elliott S. Fisher, M.D., M.P.H., and Gail R. Wilensky, Ph.D.

The Integrated Healthcare Association has released a timely and insightful White Paper titled ‘Accountable Care Organizations in California: Lessons for the National Debate on Delivery System Reform‘.

California has 285 physician organizations with many of the characteristics described in the national debate, and its experiences with these organizations over the past thirty years, both positive and negative, offer insight into the challenges that Federal policymakers will face with ACO implementation. This paper outlines five overarching aspects of California physician organizations – their organizational structures, payment methods, relationship with health plans, how they promote consumer choice, and the public policy and regulatory constraints they face – and offers ten key lessons for the national ACO debate.

The ten lessons derived from the five key features and described in detail in the report are:

1. A variety of organizational structures are effective at delivering high quality coordinated care; at least as important to success as structure are an organization’s capabilities, culture, and infrastructure, as well as the alignment of goals between the organization and its individual physicians.

2. In California, a range of relationships exist between physician organizations and hospitals. Alignment of incentives between physician organizations and hospitals offer important opportunities for performance improvements across the entire continuum of care.

3. As a method of payment, capitation can be effective at encouraging coordinated care, but payment methods should vary across ACOs depending on an organization’s ability to assume risk. Fee-for-service payment with shared savings has not proven a successful incentive for the efficient delivery of care.

4. Health plans acting in concert on payment methods and performance measurement helped facilitate the growth of California’s provider organizations, and should also play an integral part in fostering ACO development nationally.

5. ACOs are not a panacea for health care spending control. Some large provider organizations have gained bargaining power and raised prices. Capitation payment and consumer cost sharing partially offset tendencies toward raising prices.

6. ACOs must be agnostic to insurance type; most provider organizations in California have focused on commercial, Medicare, and Medicaid HMO plans for their patients, but for ACOs to be viable across the country, mechanisms must be found to encourage PPO and traditional Medicare and Medicaid patients to use their services.

7. Balancing patient choice with the desire to decrease costs and effectively coordinate care is difficult. California’s experience underscores the challenge of promoting care coordination in an environment of unrestricted provider choice.

8. Regulation of the financial solvency of provider organizations is important to ensure market stability.

9. Consumer protections from capitated provider organizations need to be balanced, not overburdening.

10. Special attention must be given to establishing ACOs in geographic areas with identifiable social and economic challenges. Some California ACOs have been very successful at managing care for Medicaid patients, despite low payment rates from the state.

The report was funded by IHA and co-authored by James C. Robinson and Emma L. Dolan, a graduate student in public health and public Policy at UC Berkeley. The complete report is available at www.iha.org.



Jeffrey L. Cohen

In the 90s, physicians were told “The sky is falling. You have to find a tree to stand under or you will be crushed.” The “trees” were things like IPAs and PHOs. The future outlook was bleak. All patients were going to be part of some system with which the physician would have no input or control. Decisions would be made on purely business grounds. And the end of fee for service medicine was at hand. NOT.

Here we are today in the face of a national healthcare reform drive. Again, any claim the sky is falling and civilization as we know is will be undone. It is the end days for private practice of medicine. NOT.

The truth is clear: this is a time of serious change in terms of how the United States intends to view and approach the delivery and payment of healthcare. The creation of Accountable Care Organizations (“ACOs”) and the dominant role of insurance companies and Pharma sound
terrifying. terrifying. Clearly, the stated intent is to reduce cost and improve outcomes.

Things like clinical pathways are coming back into focus. Discussions about Physician Hospital Organizations (PHOs), Independent Practice Associations (“IPAs”) and Super LLCs are being renewed and reconsidered against the changing landscape. The market that once existed for sellers of medical practices has withered. Certain specialties, like cardiology, are being hit extremely hard with cuts not only on physician services, but also on diagnostic imaging services that drive a lot of revenue to them. And once again the gong of the death of solo and small practices is being banged once again. Physicians are understandably frightened.

Change is change. It upsets people. And this is not the first time in the past 20 or so years that physicians have been at the butt end of it. That said, they should be wary of the “end of days” salesmen, those which sell products and strategies based on the assumption that life as they know it will end. Physicians should take a hard and long look at the things they are being asked to buy in order to survive the coming tsunami. Does the vendor have an economic stake in the decision? Buyer beware.

So, what are the most popular myths floating around now?

1. You have to spend a lot of money very quickly to comply with the HITECH Act and to get the incentive money for using EMR. Wrong. In fact, physicians that jump quick are likely to get sold stuff that is expensive and doesnt work. Instead, take your time to have an IT expert with no products to sell evaluate your IT needs and see what the most workable options are. Spend more time on the “shoe fitting” and take your time making a decision to buy.

2. Physicians that are in small and solo practices will die off quickly. The simple truth is has always been that small practices are, generally speaking, economically inefficient and limited. Thats not new! What is new is that there are more economic and regulatory pressures and any healthcare reform will be paid, in part, by payment reductions to physicians. Mega groups are an option,
but just one. Look at all forms of alignment and integration, including IPAs, PHOs and others.

3. Mega Practices Rule. Nah. It really depends on the “glue” of the practice. are they together simply to get new revenues from ancillary services? Many are, and that does not create great strategic advantages. The bottom line in terms of market position is (and always has been): a financially efficient business model (low expenses and high income) which accomplishes and demonstrates value.

4. Accountable Care Organizations Will be Physician Led. Though the opportunity certainly exists and think-tankers favor physician led ACOs, the simple truth is that creating ACOs requires huge time availability, business expertise and capital, the very things that physicians are most challenged by. That said, physicians are at the center of any ACO model and their participation and leadership in ACO development and operation is critical.

5. This is the End of Fee-For-Service Medicine. Probably not. Though the legislation clearly identifies FFS compensation as the villain for our country’s healthcare spending, and though risk based compensation will likely play a larger role, some of the Stage 1 cost savings models pay on a fee for service basis. Moreover, it is important not to become entranced entirely with the insured market. There is a First Tier market of proprietary products and models, like VIP and Concierge practices which will likely grow for high patient contact practices (e.g. cardiology, internal medicine, diabetes).

I personally do not see the end of the medical world, though I do see big changes over many years. I do not see the end of the solo or small practice, though I do see more economic stresses. And I do not see a “one size fits all” solution at all. The options require careful and calm analysis. And the old hard-won strategies that have always won will always win:

2. Increase profitability by any legitimate means that is sustainable. For instance, practicing medicine with a bunch of other physicians you do not want to be around or speak with may be profitable but not sustainable;

3. Make your lifestyle more digestible, a particularly challenging request in sunny South Florida; and

4. Ensure that any strategy you enact include (a) increasing reliance on workable EMR, and (b) tracking, improving and communicating clinical outcomes.

Change is here. More change will come. It is not an end, but rather always something new, surprising and never quite as awful as anticipated. Healthcare reform is less a thing than a conversation at this point. That said, we should all be proactive in plotting our futures. Be adaptable. Be smart. And be patient.

Jeffrey L. Cohen, a board certified healthcare attorney with over 25 years of healthcare law experience, we bring experience, knowledge and practical advice to a wide-range of healthcare related entities such as physicians, medical staffs, home health agencies, surgery and imaging centers and many others.

Ashley McKinney Fischer, Partner, McDermott Emery Will

The FTC, CMS and OIG hosted a public workshop on October 5, 2010, featuring panel discussions on antitrust issues and an announcement from the FTC that it will develop antitrust safe harbors for accountable care organizations (ACOs), as well as an expedited review process for ACOs that do not qualify for those safe harbors.

Introduction

During a workshop held by the U.S. Federal Trade Commission (FTC), the Centers for Medicare & Medicaid Services (CMS) and the Office of the Inspector General (OIG) on October 5, 2010, FTC Chairman Jon Leibowitz announced the FTC will develop antitrust safe harbors for accountable care organizations (ACOs) and an expedited review process for ACOs that do not qualify for those safe harbors.

For many providers with ACOs in development who have been looking for more definitive antitrust guidance, the announcement may be a welcome relief.   That being said, providers should know that fundamental antitrust principles will continue to apply to the formation and operation of ACOs—namely, that ACOs formed and operated to improve quality and reduce health care costs that do not create undue market concentration are pro-competitive and ACOs formed by independent, competing providers solely to raise prices are not.

This newsletter summarizes the morning sessions of the workshop concerning antitrust issues.   A future newsletter will address other regulatory issues discussed during the afternoon sessions of the workshop.

Background

Section 3022 of the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-148, directs the secretary of the U.S. Department of Health and Human Services (HHS) to establish, no later than January 1, 2012, a shared savings program that promotes accountability for a patient population, coordinates services under Parts A and B of Medicare, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.   Under the shared savings program, ACOs that meet quality performance standards established by the HHS secretary are eligible to receive shared savings payments.  Among other requirements, an ACO must be accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it.

Although popularized by PPACA, the concept of independent providers coming together and being jointly accountable for the cost and quality of care they provide is not new.  In 1996 the U.S. Department of Justice (DOJ) and FTC in the Statements of Antitrust Enforcement Policy in Health Care(Policy Statements) first recognized the concept of clinical integration as a collaborative activity among competing health care providers that may provide a sufficient basis for analyzing joint-pricing negotiations under the rule of reason and not the per se standard of illegality.  Since the passage of PPACA, many providers have wondered how the DOJ and FTC would apply the standards they developed for clinically integrated managed care contracting networks—through the Policy Statements, advisory opinions and other, subsequent guidance—to the formation and operation of ACOs.

Government Officials’ Remarks

CMS Administrator Don Berwick, MD, stated the government wants to help integrated care thrive.   He also noted the government needs to be a proper steward of the antitrust laws.  Said differently, the government wants providers to cooperate and achieve synergies without colluding. 

Leibowitz stated the promise of ACOs—improved quality and reduced costs—offers a real opportunity for health reform and explained that the government’s job is to ensure that regulations encourage ACO development while also protecting consumers.   He then announced the FTC wants to explore the development of safe harbors so providers can know when they can collaborate.  Further, the FTC will explore an expedited review process for ACOs that fall outside the safe harbors.  Leibowitz acknowledged the difficulty of establishing safe harbors—that is, categories of conduct that, absent extraordinary circumstances, the DOJ and FTC will not challenge—that displace traditional facts and circumstances analysis under the antitrust laws.  He then appealed to the provider community, stating that in order to develop effective safe harbors, the FTC needs input from providers.  Specifically, the FTC is interested in the types of activities providers may engage in through ACOs and how providers envision ACOs operating in the marketplace.

FTC Panel Discussions

The FTC conducted two moderated panel discussions.   Provider and payor representatives, as well as policy experts, participated in the sessions.

Sufficient Integration and the Rule of Reason

The first panel addressed the issue of when ACO participants should be deemed sufficiently integrated through the ACO such that their collective price negotiations should be analyzed under the rule of reason and not the per se standard of illegality.  The panel considered whether the FTC should establish a safe harbor for ACOs that satisfy CMS’ criteria for ACO participation in the Medicare program.  Under the proposal, the FTC would view any ACO qualified by CMS to be sufficiently clinically integrated for rule of reason treatment.  The panel also considered how CMS should elaborate on PPACA requirements for ACOs—namely, that an ACO be accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it—to ensure that ACO participants are sufficiently integrated within the meaning of the antitrust laws.

Panelists discussed possible criteria.   Many provider representatives emphasized the importance of providers’ ability to share data and the ability of the organization to capture and analyze data.  A representative from a clinically integrated independent practice association emphasized the importance of electronic tools to improve cost and care coordination.  These tools allow providers to evaluate their performance against their peers. Another representative from a clinically integrated physician-hospital organization expressed the view that the importance of the adoption and implementation of electronic health records systems (EHRS) has been overemphasized, and that his organization has been clinically integrated despite its participants not having universally adopted EHRS.  Among other initiatives, his organization created disease registries to manage patient populations.  Later, it required participants to adopt high-speed internet technology, then e-prescribing.  As a result of federal stimulus money, the provider participants in his organization are now adopting EHRS.

A trade association representative encouraged the FTC to set the criteria at a high level in recognition that there are various care integration models.  Another panelist added that the FTC criteria cannot be too specific, otherwise competition could be stifled.  These comments recognize that one of the purposes of the antitrust laws is to foster innovation such as new care delivery models.   One of the challenges for the FTC as they consider a possible safe harbor will be how to answer the industry’s call for clear standards while also allowing for flexibility in model design.

Market Power, Over-Inclusiveness and Exclusivity

The second panel discussion addressed issues of market power, over-inclusiveness and exclusivity.  The participants considered whether the FTC should adopt an antitrust safety zone pertaining to market share for ACOs.  Statement 8 of the Policy Statements contains an antitrust safety zone that applies solely to physician networks.  Under the safety zone, the DOJ and FTC will not challenge, absent extraordinary circumstances, an exclusive physician network joint venture whose physician participants share substantial financial risk and constitute 20 percent or less of the physicians in each physician specialty who practice in the relevant geographic market, or a non-exclusive physician network whose physician participants share substantial financial risk and constitute 30 percent or less of the physicians in each physician specialty who practice in the relevant geographic market.  The DOJ and FTC did not extend the antitrust safety zone for physician networks to multiprovider networks, which the DOJ and FTC analyze under Statement 9 of the Policy Statements.

The panel first addressed the issue of how large an ACO needs to be in order to deliver care effectively.   Many panelists believed that ACOs need sufficient scale in order to achieve program objectives and properly measure performance.  ACOs also need scale in order to spread out the cost of infrastructure investments, staff and other resources.   Scale also enables an ACO to spread risk effectively.  The payors on the panel addressed the extent to which they are experiencing market power issues with providers and, not surprisingly, stated that they have experienced price increases in markets where certain providers are dominant.  One of the challenges for the FTC as they consider a possible safe harbor will be how to balance the need for scale to achieve program objectives against market power concerns.

Panel participants also discussed the issue of exclusivity.   Under an exclusive ACO, provider participants negotiate with payors only through the ACO and they may not join other ACOs.  A professor expressed the concern that the advisory opinions on clinically-integrated networks the FTC has issued to date unfairly emphasize non-exclusivity.  He doubted whether a high-functioning ACO can have provider participants whose loyalty is split among competing organizations.  Several representatives stated that exclusivity is necessary to achieve the benefits of clinical integration, at least with respect to primary care physicians.  As with other concerns the FTC must balance, it will be challenged to develop ACO guidance that recognizes both the benefits and foreclosure implications of exclusivity.