Health Care Reform and Competition

In the year since the Patient Protection and Affordable Care Act (PPACA) has been enacted, the industry has been wrestling with new mandates, incentives and compliance issues. Of course, there is a lot at stake – Medicare reimbursements in the billions of dollars.

In many areas, health care organizations have to determine how they can collaborate with other institutions to reduce costs and gain efficiencies while not running afoul of the antitrust laws.

At the same time, however, the new rules imposed some significant restrictions, including caps on physician-owned hospitals' growth. Physician-owned hospitals have boomed in the last few years: more than 300 exist today, and offering specialized services. As owners of the hospital , doctors can offer unique efficiencies and have an incentive to minimize costs.

Under health care reform, physician-owned hospitals are limited in the amount of patient capacity and the percentage of physician ownership which could not increase. Many hospitals have fought competition from these physician owned hospitals. Health care reform favored large general hospitals over specialty facilities by imposing the cap.

Both general hospitals and their physician-owned counterparts are wrestling with how to deliver on the government's mandate to establish deeper cost-reducing collaboration between hospitals by creating “accountable care organizations” or ACOs. ACOs are meant to encourage participating providers to come together and determine how best to collectively reduce costs – perhaps by consolidating their purchasing power, comparing overhead, or otherwise collaborating, in exchange for receiving a portion of verifiable savings they achieve.

The March 31, 2011 proposed rule addressing ACOs listed substantial criteria that must be met before shared savings occurs. Many providers have decided to postpone any effort to implement an ACO until the final rule is in place and several key questions addressed. Chief among those questions is the idea that ACOs, by their nature, are, to some extent anti-competitive, as ACO participants will be required to compare and share sensitive cost and pricing information.

The Antitrust Division and the FTC have proposed different levels of scrutiny and compliance depending on the market share of the proposed ACO.  For those that have market share above 50 percent, the guidance makes it clear that cost-savings and other benefits must be significant and outweigh the risk of anti-competitive harms.

There is no doubt that ACOs raise serious antitrust issues. Federal guidance on ACO antitrust exemptions and policies have significant gaps and have not allayed industry concerns about potential enforcement actions in this area. By encouraging providers of patient care to share data and explore ways to leverage their buying power to reduce their costs, there will be a lessening of competition but a government mandate that providers reduce their costs. Providers are likely to sit on the sidelines and wait to see as ACOs emerge and how they tackle some of the difficult competition issues.