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Thomas L. Greaney, Regulators as Market-Makers: Accountable Care Organizations and Competition Policy, 46 Ariz. St. L. J. 1 (2014), available at SSRN.

Most discussions of the Affordable Care Act (ACA) focus on its primary goal—expanding health insurance coverage. Often overlooked, however, are various ACA initiatives targeting another important goal—reigning in health care costs. Included among these initiatives is the Medicare Shared Savings Program (MSSP). The MSSP ambitiously seeks to shift the health care delivery system away from independent providers who provide costly, uncoordinated care to organizations that focus on coordinated, evidence-based care. Specifically, the MSSP encourages the formation of accountable care organizations (ACOs), clinically integrated organizations of physicians and other providers that work together to provide patients better care while lowering overall costs.

Proponents of ACOs believe ACOs hold great promise for slowing the growth in health care costs. Professor Greaney’s article, however, offers a cautionary note. As he explains, the movement toward ACOs threatens to exacerbate the problem of health care providers’ increasing market power. Although federal regulators are cognizant of this risk, Greaney contends that the MSSP’s regulatory framework does too little to prevent provider market power.

Although implemented under the Medicare program, the MSSP also is intended to benefit private payors and their enrollees. ACOs participating in the MSSP share in a portion of any savings they generate for the Medicare program provided they meet certain quality performance standards. To succeed under the MSSP, then, an ACO must redesign its clinical care processes in ways that improve the quality of care provided to Medicare beneficiaries while also lowering Medicare’s costs. These changes also benefit the private sector, as privately insured patients treated by ACOs likewise receive higher quality, more efficient care. In addition, ACOs are attractive contracting partners for commercial insurers and employers seeking alternative payment arrangements, such as bundled payments and capitation.

Greaney, however, cautions that encouraging the development of ACOs brings risks. As providers come together to form ACOs, we are seeing an acceleration of a 15-year trend of greater provider concentration. This increased provider concentration strengthens providers’ leverage in their negotiations with commercial plans and employers, leverage they have used to both extract higher fees and resist alternatives to traditional fee-for-service. Of particular concern are ACOs that leverage their market power in one provider segment (e.g., hospitals) to negotiate higher prices in other provider segments (e.g., physician services). In addition, reduced provider competition weakens incentives for providers to alter their clinical practices so as to improve quality while economizing patient care. This lack of innovation also threatens the quality of care provided to Medicare beneficiaries. Finally, providers extracting higher prices from private payors may be less willing to treat Medicare beneficiaries for whom they receive lower payments.

Although the MSSP regulations and the FTC/DOJ Statement of Antitrust Enforcement Policy Regarding ACOS Participating in the MSSP (“FTC/DOJ Statement”) address these concerns, Greaney argues that federal regulators did too little. He sharply criticizes the government’s decision to abandon its earlier proposal to require mandatory review of certain ACOs by the FTC or DOJ as a prerequisite for their participation in the MSSP. He notes that a pre-screening process would have discouraged providers from forming ACOs that press the outer boundaries of acceptable arrangements under the antitrust laws. A pre-screening process also would have allowed the FTC or DOJ to condition their approval of an ACO on the organization agreeing to certain stipulations that protect competition (something the FTC and DOJ frequently do in merger cases).

Greaney also argues that the FTC/DOJ Statement focuses too narrowly on collaborations among otherwise independent providers, ignoring the potential competitive harms posed by ACOs formed by dominant providers or resulting from mergers. This omission encourages providers to consolidate into single entities, a trend we are seeing in the form of hospitals employing physicians and acquiring physician practices. Of particular concern is that consolidation may frustrate the emergence of a competitive ACO market, as individual providers integrated into a single organization are less likely to withdraw and form a competing integrated network. Greaney argues that CMS, the FTC, and DOJ missed an opportunity to facilitate closer monitoring of ACOs formed by dominant providers or through mergers. For example, federal regulators could have conditioned MSSP participation on ACOs providing data on their costs and negotiated rates with private payors. Regulators also could have required ACOs with dominant hospitals to unbundle their competitive and non-competitive services when negotiating with payors, a step that would have allowed private payors to bargain down fees for services for which there exist substitute providers.

Many people, myself included, believe the MSSP and similar programs have the potential to fundamentally re-shape the health care delivery system. Importantly, the shared savings model provides a bridge from fee-for-service to the risk-based payment models that hold great promise for slowing health care inflation. Greaney’s thoughtful analysis highlights that this transformation may prove harmful to the private sector if regulators fail to aggressively protect market competition from dominant ACOs.

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Cite as: Jessica Lind Mantel, The Medicare Shared Savings Program: A Missed Opportunity to Address Providers’ Growing Market Power, JOTWELL (October 8, 2014) (reviewing Thomas L. Greaney, Regulators as Market-Makers: Accountable Care Organizations and Competition Policy, 46 Ariz. St. L. J. 1 (2014), available at SSRN), http://health.jotwell.com/the-medicare-shared-savings-program-a-missed-opportunity-to-address-providers-growing-market-power/.