ACO Alerts: Antitrust & Exempt-Status Implications

Does the final (and greatly revised) rule for establishing an accountable care organization have your organization’s healthcare leaders champing at the bit to participate? If so, proceed with caution and consider the antitrust and tax-exempt status implications.

“I still have some concerns around the antitrust issue. … The rules are still very technical and obviously an organization like I run is very cautious. We don’t want to get in trouble with the government,” says Chris Van Gorder, president and CEO of Scripps Health, a $2 billion-plus not-for-profit health system in San Diego.

Accompanying the release of the new rules governing ACOs on Thursday came a joint statement of enforcement policy from the Department of Justice and the Federal Trade Commission on the antitrust law implications of the ACO regulations, as well as Internal Revenue Service guidance for tax-exempt organizations. Though the guidelines from all three agencies are written to encourage the establishment of ACOs, these documents also give firm parameters on where not to tread.

Michael Regier, senior vice president of legal and corporate affairs, general counsel, and compliance officer for VHA Inc., a healthcare network of 1,400 not-for-profit hospitals, says that while the changes to the guidelines make ACOs more attractive, there remain antitrust and exempt status considerations which must be addressed by any ACO participant.

“There’s no question, even with the new changes to the ACO rules, the antitrust implications remain high on the [DOJ and FTC] agencies’ radar,” says Regier.

Healthcare providers, he says, should pay particular attention to two areas:

1. The competitive effect of ACO contractual agreements.
2. 2) The impact of these contractual agreements on the cost of healthcare.

To assess the competitive effect of ACO agreements, the Centers for Medicaid & Medicare Services will provide the FTC and DOJ with aggregate claims data on allowed charges and fee-for-service payments. In their joint statement, the agencies wrote that they would use the data “together with their traditional enforcement tools, to evaluate competitive concerns about an ACO’s formation or conduct and will take whatever enforcement action may be appropriate.”

Moreover, the FTC and DOJ will pay particular attention to the dominant participant in a healthcare market, defined as an organization with over 50% market share. If this participant offers a primary service to an area in which very few or no other providers do, then that organization must remain a non-exclusive service provider within the ACO. That primary service provider must be permitted to contract with other care delivery organizations.

Dr. David Spahlinger, internist and senior associate dean at the University of Michigan Medical School, says the revised ACO regulation provides more flexibility for partnering, “but it’s still a lot stiffer than what we’ve had for years. We’ve had hospitals with 80% of the market share merge and no one paid attention, and there has been a minimal amount of review in the past. This is a new day.”

The impact of ACO agreements on the cost of healthcare is another concern for the FTC and DOJ. Regier says they will be watching to see if ACOs “tie up, in an anticompetitive way, contracts with private insurance carriers that affect market access, and if these exclusive dealings impact the cost of care for consumers.”

The agencies wrote, “Under certain conditions, ACOs could reduce competition and harm consumers through higher prices or lower quality care. … For ACOs that may have market power, the policy statement identifies additional conduct that, depending on the circumstances, may prevent private insurers from obtaining lower prices and better quality services for their enrollees.”

In addition to this guidance, the proposed guidelines include two other significant changes:

1. Coverage was expanded to “all provider collaborations that are eligible and intend, or have been approved, to participate in the Medicare shared savings program. The policy statement no longer applies only to collaborations formed after March 23, 2010.”
2. The antitrust review was changed from mandatory to an expedited, 90-day voluntary review.

The shift to a voluntary antitrust review, in particular, is a time- and money-saver for healthcare organizations, says Regier. “I’ve been through these reviews and it can cost hundreds of thousands in administrative costs to complete even if there aren’t any anticompetitive implications, and it’s a long process. So this is great news,” he says.

In addition to the agencies’ joint policy statement, the IRS also revised the ACO participant tax-exempt guidelines.

The IRS wrote that a charitable organization’s participation in the shared savings program through an ACO will not “result in inurement or impermissible private benefit to the private party ACO participants” if the ACO is structured to give consideration to five factors:

1. The tax-exempt organization’s portions of shared savings, losses, and expenses are stated in a written agreement “negotiated at arm’s length.”
2. CMS has accepted the ACO into its program.
3. The share of economic benefits is proportional to the benefits or contributions the tax-exempt organization provides.
4. The exempt organization’s share of the ACO’s losses doesn’t exceed the share of economic benefits.
5. All contracts and transactions entered into by the tax-exempt organization are at fair market value.

Regier says the IRS “clearly said that none of these factors have to be satisfied in every circumstance … and it still won’t jeopardize the exempt status.”

The 18-page DOJ and FTC policy statement and the 7-page IRS fact sheet offer healthcare leaders comprehensive guidance on how to avoid antitrust violations and exempt status missteps. If your organization decides to pursue an ACO, keep these guidelines in mind, and expect a watchful eye from the government.

Editor’s Note: With contributions from John Commins.