Accountable Care Organizations: Exemptions From and Antitrust Law and Other Healthcare Laws Offer Many Advantages

Thursday, October 11, 2012

By: Lance O. Leider, J.D. and George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law

The recently enacted Medicare Shared Savings Program (MSSP) has created a new form of healthcare delivery system, the Accountable Care Organization (ACO).  The purpose of the ACO is to encourage providers to reduce healthcare costs by grouping together and assuming responsibility for the care of a group of beneficiaries.  In order to accomplish this goal, ACOs have been provided with exemptions from the federal Anti-Kickback Statute, the Stark Law, civil monetary penalties, patient kick-back/inducement laws, and antitrust laws.

These exemptions permit the ACO to form business relationships that would otherwise be prohibited, yet provide avenues to substantially reduce the overall cost of the enrolled beneficiaries' care.  Perhaps the most effective cost saving measures at the disposal of an ACO are the incorporation of a wide group of providers and broad spectrum rate negotiations.  If you're thinking that Medicare and Medicaid have set reimbursement rates thereby providing an exemption to antitrust law, you would be correct.  But you would only be correct if ACOs were strictly staying in the federal healthcare business.

FTC/DOJ Policy Statement on Antitrust and ACOs.

Unfortunately, ACOs are extremely expensive to start up and get running.  As such, the organizers are taking the ACO model and seeking out private payor sources to increase revenue and offset the start up costs.  With this in mind the Federal Trade Commission (FTC) and Department of Justice (DOJ) or (the "Agencies") released a policy statement regarding ACOs and antitrust law.

Click here to read the entire policy statement.

In this statement the Agencies describe what and to whom it applies, how the arrangements will be analyzed under antitrust law, and define a "Safety Zone."

What Entities Are Covered?

The FTC/DOJ Policy Statement is meant to apply to providers and provider groups that are eligible for, and intend to participate in, an ACO.  The statement does NOT apply to mergers of groups, hospitals, etc., nor does it apply to otherwise fully integrated entities.

These non-covered entities are governed by the Agencies' long standing policies on the consolidation and activities of healthcare businesses and practices.

How Will the Business Arrangements be Reviewed?

In antitrust law there are two different standards by which a business arrangement can be analyzed:

1. the per se illegal analysis (“per se”),

2. the “rule of reason” analysis. The “Rule of Reason” analysis is more flexible and under it, it is usually very difficult to prove an antitrust violation.

Per se illegal arrangements are those that the courts and the Agencies have seen a number of times; they are almost always found to have overriding anti-competitive effects.  Think naked price fixing among competitors.

The Agencies have decided to adopt the Rule of Reason as the sole method of review for all ACO arrangements.  The Rule of Reason is an analysis that evaluates whether the arrangement is likely to have anticompetitive effects and, if so, whether the procompetitive advantages outweigh them. 

The Agencies have decided that ACOs that meet the eligibility requirements for the MSSP are reasonably likely to reflect a bona fide arrangement aimed at improving the quality, and reducing the costs, of providing healthcare its beneficiaries.  These types of gains are traditionally viewed as compelling factors in Rule of Reason analysis. In other words, it is almost like a presumption that the arrangement is not anti-competitive.

Where is the Safety Zone?

Safety Zones are a set of standards that if met will exempt an ACO from being challenged by the Agencies absent extraordinary circumstances.

The Safety Zone is based on the ACO's market share of services in each participant's Primary Service Area (PSA).

What is a PSA?

The PSA is the primary geographic area from which a provider derives the majority of its business.  The statement defines PSA as the lowest number of zip codes from which the provider derives seventy five percent (75%) of its patients.

Market Share Requirement.

Once a provider's PSA has been established, the next step in determining if the ACO is in the Safety Zone is to calculate market share.  All ACO participants that provide a common service must have a combined thirty percent (30%) or less market share to qualify for the Safety Zone.

What this means is that any participants that provide common services must have their market shares added together in any shared PSA.  An example may better serve to illustrate.

Imagine an ACO that has two specialty groups, Group A and Group B.  Suppose Group A provides cardiology and oncology services in a particular PSA, and that its market shares are fifteen percent (15%) and ten percent (10%), respectively.  Now suppose that Group B provides cardiology and diagnostic imaging services in the same PSA, and that its market shares are ten percent (10%) and twenty percent (20%), respectively.

What this means is that Groups A and B provide a common service in the PSA, cardiology.  As a result, their respective market shares will be added together to determine eligibility for the Safety Zone.  Here, through Group A and B's combined services, the ACO has a twenty five percent (25%) market share of cardiology services in the PSA and thus qualifies for Safety Zone protection.

Exceptions to the Market Share Requirement.

Like any good regulatory scheme, there are exceptions to the rule.  The first is the Rural Exception.

The Rural Exception permits ACOs to include one physician or group per specialty from each rural area it serves regardless of that single group or physician's market share.  The purpose of this exception is to permit the benefits of ACOs to reach rural and underserved areas without interference from antitrust challenges. 

For the purposes of the policy statement, "rural area" means any county containing at least one zip code that has been classified as "isolated rural" or "other small rural" according to WWAMI Rural Health Research Center of the University of Washington's seven category classification.
Click here for the University of Washington's classifications

The second exception is the Dominant Participant Limitation.  This applies to an ACO that includes a participant with a greater than 50% share in its PSA of any service that no other ACO participant provides to patients in that PSA.  The only other requirements for this exception are that the dominant participant must be nonexclusive to the ACO, and the ACO is prohibited from restricting a private payor's ability to contract with other ACOs or provider networks.

Safety Outside the Safety Zone.

ACOs that fall outside the Safety Zone or one of its exceptions, may be procompetitive and lawful.  The Agencies will not challenge an ACO that "does not impede the functioning of a competitive market."

The Agencies have given a list of ACO conduct that should be avoided because it is likely to raise anticompetitive concerns.

1. Improper sharing of competitively sensitive information

2. Preventing or discouraging private payors from incentivizing patients to choose certain providers, be they inside or outside the ACO

3. Tying sales of the ACO's services to the private payor's purchase of other services from providers outside the ACO

4. Contracting on an exclusive basis with ACO physicians, hospitals, ambulatory surgery centers, or other providers thereby discouraging those providers from contracting with private payors outside the ACO

5. Restricting a private payor's ability to make available to its enrollees cost, quality, efficiency, and performance information that aids the enrollees in evaluating and selecting providers

Pre-Engagement Antitrust Review.

Because ACOs are an entirely new creation, they present a whole new range of possible business arrangements that would have previously been illegal.  The narrow Safety Zone and loose guidance offered by the Agencies' factors listed above leave open innumerable arrangements whose antitrust implications are uncertain.

To deal with this uncertainty, the Agencies have made available a Voluntary Expedited Antitrust Review.  Any newly formed ACO that desires further antitrust guidance can submit a request followed by complete documentation of its proposed arrangement to the reviewing agency.

For a list of the documentation that will be required see Federal Register Volume 76, page 67030-67031.

Within ninety (90) days of the submission of all the relevant documents, the reviewing agency will notify the ACO that its arrangement: does not likely raise competitive concerns, potentially raises competitive concerns, or likely raises competitive concerns.

The benefit of this process is that the reviewing agency will negotiate changes to the arrangement with the ACO so that it can come into compliance with procompetitive practices.  A further benefit is that if the ACO's business model is the result of active negotiation with the reviewing agency it is unlikely that it will later pursue an antitrust challenge.

It is important to note that compiling and providing the documentation to the agency for review will likely cost a substantial amount of money and time.  Furthermore, this will likely be done right on the heels of the expenditures associated with setting up the ACO and at a time when there is likely little to no revenue being produced.  The alternative to this expenditure is to roll the dice and wait and see if a full-blown antitrust challenge comes later on.  However, the legal and administrative costs associated with such an inquiry could quickly dwarf the costs of a preliminary submission the Agencies.


ACOs are a new concept and not much is known about how they will fit into the healthcare landscape of the near future.  This uncertainty is reflected by the rules and policy statements issued by the agencies who will be regulating them.  CMS, DOJ, and FTC have taken a relatively loose approach to the early regulations.  By keeping options open and inviting discourse and negotiations with the private sector there is a good opportunity to shape future rules and policies.

The downside to this is that there is little direction for the early adopters.  In order to be prepared for potential regulatory issues, it is crucial to engage an experienced healthcare attorney to assist your ACO through the process.

Contact Health Law Attorneys Experienced With Healthcare Business Practices.

The Health Law Firm routinely represents physician groups and practices with issues involving establishing, licensing, selling, merging, and intergroup affiliation.  If you are considering establishing an ACO or have been approached to become a participant in one, you can contact The Health Law Firm at (407) 331-6620 or (850) 439-1001 or you can visit our website at

About the Author: Lance O. Leider is an attorney with The Health Law Firm, which has a national practice.Its main office is in the Orlando, Florida, area.  The Health Law Firm, 1101 Douglas Avenue, Altamonte Springs, Florida 32714, Phone:  (407) 331-6620.

George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law.  He is the President and Managing Partner of The Health Law Firm, which has a national practice.  Its main office is in the Orlando, Florida, area.  The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone:  (407) 331-6620.

Tag Words: accountable care organization, ACO, lawyer, counsel, attorney, antitrust, Federal Trade Commission, FTC, Department of Justice, DOJ, healthcare business lawyer, Medicare Shared Savings Program, MSSP, health law attorney, defense lawyer, defense attorney, Centers for Medicare and Medicaid, CMS, Rule of Reason, Safety Zone, Rural Exception, Dominant Participant Limitation, primary service area, PSA, anticompetitive, procompetitive
"The Health Law Firm" is a registered fictitious business name of George F. Indest III, P.A. - The Health Law Firm, a Florida professional service corporation, since 1999.
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