Healthy Competition?

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Is anticompetitive conduct by HOPTS and ACOs driving you out of business?
Maybe the Federal Trade Commission can help!

By Gwen Simons, Esq, PT, OCS, FAAOMPT
August 2014

The Federal Trade Commission (FTC) historically has been concerned about hospital mergers that tend to foreclose competition between hospitals, although more recently, the FTC has grown concerned about the substantial growth in hospital acquisition of physician practices and its potential effects on health care competition. The number of physician practices owned by hospitals more than doubled between 2002-2008.1 It’s not unusual to hear that in some geographic areas of the country, 75 percent of primary care physicians are hospital employees. Declining reimbursement, greater administrative/compliance burdens, and increasing technology needs (i.e., EMR systems) have converged to facilitate a consolidation of hospitals and physicians. The Affordable Care Act seems to have incentivized this further by promoting Medicare Accountable Care Organizations (ACOs). The end result of all this consolidation, whether through acquisition, merger, or contractual arrangements between hospitals and physicians in an ACO, is a growth in Hospital-owned Physical Therapy Services (HOPTS) that is threatening the survival of private practice. The question is: “is this trend helping or harming consumers?”

A recent study published in Health Affairs shows that hospital acquisition of physician services (leading to “fully integrated organizations”) results in a 3.2 percent increase in prices.2 Vertical alignment of hospitals and physicians, raises can harm consumers in several ways. Hospitals can employ physicians to increase hospital admissions, diagnostic testing, and outpatient services.3 By employing physicians, and paying them handsomely, both physicians and hospitals can circumvent Stark and Antikickback laws.4 Hospitals can also use exclusive relationships with physicians to gain a competitive advantage over their competition.5 And lastly, by bundling physician and hospital services together, they may be able to charge higher prices to insurers (or at least gain a negotiating advantage).6

Supporters of ACOs believe better integration, communication, and coordination of care will ultimately result in better outcomes, thus justifying, perhaps, modest increases in prices. The assumption of this ACO integrated model, however, is that every patient will need multiple services from multiple health care providers who need to integrate, communicate, and coordinate their care. While improvements in coordinating care might be necessary for the 10 percent of the people who account for 64 percent of U.S. health care costs,7 it might not be needed for the other 90 percent of U.S. citizens who just want to get the physical therapy services they need from the most qualified, cost-effective provider. Therefore, any potential procompetitive benefits to receiving care in a vertically integrated hospital-physician system won’t likely outweigh the higher costs of physical therapy at a hospital. Hospital charges for physical therapy (and reimbursement) in general tend to be two to four times more than what the typical private practice is paid per visit. Add the “facility fee” onto that and the patient’s 20 percent copay might end up costing as much as the entire visit at a private practice! Therefore, any relationship between hospitals and physicians, employment or contractual, that tends to divert referrals from private practitioners to hospital-owned facilities has great potential to substantially harm consumers.

The FTC is starting to recognize the impact hospital acquisition of physician practices can have on competition and the cost of health care. In a recent FTC case, a federal judge ruled that St. Luke’s Health System in Idaho violated federal and state merger laws when it acquired Idaho’s largest independent physician group. The FTC argued that because the acquisition would give St. Luke’s 80 percent of the primary care physicians in the market, the deal would foreclose competition in the primary care market (a horizontal integration problem between physicians even though the hospital ownership of the physicians was also a vertical integration with St. Luke’s). St. Luke’s tried to argue the procompetitive effects of the merger, such as being in a better position to deliver integrated care. But the judge, relying on expert testimony, found that “physicians are committed to improving the quality of health care, and lowering its cost, whether they are employed or independent.” In other words, financial integration is not necessary for clinically integrated care to occur. The judge ordered divestiture of the merger but as of the time this article was written, the case had been appealed to the Ninth Circuit Court of Appeals.

As hospital acquisition of physician practices and formation of ACOs continues to grow, private practitioners need to know what anticompetitive conduct that violates antitrust laws looks like. First look for how much control the hospital system/ACO (or any other competitor, for that matter) has over the market for PT services, as well as the percentage of primary care and specialty physicians the entity has control over, either through employment or contractual relationships. Anything over 50 percent is most certainly a monopoly share, but some case law indicates control over as little as 40 percent of the market could be dangerously close to acquiring a monopoly. Watch for anticompetitive conduct, including but not limited to (1) refusing to refer a patient to your private practice even when the patient requests to come to you instead of the provider the physician originally referred the patient to, (2) preventing or discouraging private payors contracting with you as a private practitioner, (3) preventing or discouraging private payors from directing or incentivizing patients to choose a private practice provider that is not affiliated with the hospital system or ACO, (4) contracting with physicians on an exclusive basis in exchange for the physician directing all referrals for ancillary services and diagnostic testing to the hospital system/ACO, or (5) bullying or threatening physicians when they refer outside of the hospital system.

More complaints need to be filed with the FTC to keep this issue on their radar screen. Filing a complaint is not hard, but it has to describe what the harmful effect of the anticompetitive conduct will be on consumers, not you as the private practitioner. Antitrust laws are intended to protect competition, not competitors. It is recommended that you solicit assistance from an attorney with health care antitrust knowledge to ensure that your complaint includes all of the evidence necessary to support your claim so your complaint will be taken seriously. For more information on the complaint process, go to www.ftc.gov/faq/competition/report-antitrust-violation.

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Gwen Simons, Esq, PT, OCS, FAAOMPT, is a health care attorney at Simons & Associates Law in Scarborough, Maine. She works primarily with physical therapists in private practice on payment and payor contracting issues. She can be reached at gwen@simonsassociateslaw.com.

 

 

NOTES

1. Kocher R, Sahni NR. Hospitals race to employ physicians—the logic behind a money-losing proposition. New England Journal of Medicine. 2011;364(19):1790–3.

2. Id.

3. O’Malley AS, Bond AM, Berenson RA. Rising hospital employment of physicians: better quality, higher costs? Washington, D.C.: Center for Studying Health System Change; Posted 2011 Aug [cited 2014 Mar 20]. (Issue Brief No. 136). Website http://www.hschange.com/CONTENT/1230. Accessed June 2014.

4. Baker LC, Bundorf MK, Kessler DP. Vertical Integration: Hospital Ownership of Physician Practices Is Associated with Higher Prices and Spending. health aff. 2014;33(5):756-763.

5. Supra n. 3. 6. Id.

7. Orszag PR, Emanuel EJ. Health care reform and cost control. New England Journal of Medicine. 2010;363:601-603.

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