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Physician Specialty Group Affiliations and ACO Involvement

Specialty Affiliations and Mergers – Consider How You Fit Into An Accountable Care Organization

Merging Physician Specialty PracticesOne result of health care reform is a resurgence in affiliations and mergers of specialty practices throughout the country.  The structures of various physician specialty consolidations take a variety of forms, from IPAs, to divisional model groups, through completely integrated group practices.  Each structure raises its own legal considerations and challenges.  Regardless of what structure is used to consolidate specialty practices, the end result must be to create a facility to assure optimal participation under a reformed health care system.  This necessarily will include assuring participation in an Accountable Care Organization.

Specialty groups need to create a structure that does not exclude them from participation in an ACO.  One thing to consider when structuring a specialty group affiliation is the size and market share of the group in relation to the ACO antitrust safety zone that was issued by the Federal Trade Commission and the Department of Justice.  The ACO safety zone provides that an organization that meets the requirements to be an Accountable Care Organization will be considered to be “clinically integrated” under the antitrust laws. The DOJ and FTC state that they will not challenge ACOs that fall within the safety zone, absent extraordinary circumstances.

Normally, an organization that consists of independent competing physicians and other providers cannot jointly contract because an agreement on pricing issues amounts to a per se violation of the antitrust laws.  The goal in structuring such an organization is to provide for clinical and/or financial integration that is sufficient to take the organization out of the per se analysis into what is called the “rule of reason” analysis.  The per se rule means that the organization is automatically deemed to violate the antitrust laws.  On the other hand, the rule of reason involves a weighing of the pro-competitive affects of the organization against the anti-competitive affects.  The ACO Safety Zone amounts to a proclamation by the agencies that groups that meet the requirements to be an ACO will be judged under the more lenient “rule of reason.”

The ACO Safety Zone does not stop there.  It goes on to define when an organization will receive favorable analysis under the rule of reason.  For an ACO to fall within the safety zone, independent ACO participants that provide the same service (a “common service”) must have a combined share of 30 percent or less of each common service in each participant’s service area (“PSA”) wherever two or more ACO participants provide that service to patients from that PSA. The PSA for each participant is defined as the lowest number of postal zip codes from which the participant draws at least 75 percent of its patients, separately for all physician, inpatient, or outpatient services. Thus, for purposes of determining whether the ACO is eligible for the safety zone, each independent physician solo practice, each fully integrated physician group practice, each inpatient facility, and each outpatient facility will have its own PSA.

The Safety Zone adds some elements of certainty that did not exist under the usual “rule of reason” analysis.  For example, the Safety Zone contains a definition of the “market” to be used for purposes of safety zone analysis.  Normally the definition of “market” is a factual issue which makes an antitrust analysis difficult.  For ACO Safety Zone purposes we know that the market is considered to be the lowest number of postal zip codes from which the participant draws at least 75 percent of its patients.

Specialty organizations should keep these numbers in mind when determining the breadth of participation in their organizations.  Less integrated groups such as IPA and divisional model groups should perform this analysis and structure their groups to fall within the ACO Safety Zone.  Larger groups will have troubles plugging into an ACO that wishes to take advantage of the ACO Safety Zone.

These requirements only apply to independent groups.  A fully integrated physician group is considered to be a “single actor” for purposes of the antitrust and is therefore unable to conspire with itself on pricing issues.  This begs the question of what constitutes a “fully integrated” group for purposes of the antitrust laws.  Certainly a group that results from the merger of various practices, all who become employees of the new organization, without the creation of a divisional structure, would be considered to be a “fully integrated group.”  On the other hand, an IPA of individual practices or smaller groups would not be considered to be a “fully integrated” group.  Structures that fall between these two extremes constitute a “gray area.”  A Divisional Model Group or a Group Practice Without Walls, that has very little centralization of governance or activities and maintains most of its structure at the division or practice site level, could potentially raise questions as to whether sufficient levels of integration have been achieved to create a “fully integrated” group.

Because of the sensitivity of IPAs and divisional model structures, it is important that groups consult with competent health care or antitrust counsel who has sufficient sensitivity to these issues.  Failure to properly design a group can lead to future questions about the group’s ACO participation.  For example, if a divisional model contains more than 30% of the providers in the relevant PSA and is “collapsed” for antitrust purposes, the group’s participation in the ACO may be questioned by the ACO organizers.  Divisional models are being used frequently as a method to consolidate physicians because of the relative ease of implementing the structure.  Recently, there have been rumors that the FTC may be examining divisional groups to determine whether they are integrated enough to support them being considered a “fully integrated” group.

The same analysis applies to an IPA which is not financially integrated and includes over 30% of the providers in the local market.  In the end, you do not want to have your purposes of forming the group frustrated because these issues were not properly considered when structuring the organization.

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John H. Fisher

Health Care Counsel
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