“Soft” Consolidation in Medicare ACOs Can Lead to Higher Prices

June 08, 2021 - Some independent primary care practices joining health system-led Medicare accountable care organizations (ACOs) raised their prices after what researchers called “soft consolidation,” according to a new study out of Harvard University.

Under soft consolidation, practices are never formally acquired by a health system. Rather, the practices jointly negotiate prices with payers in conjunction with the health system. Another common example is the formation of a clinically integrated network under which independent providers bargain together.

These softer consolidation strategies are permissible under federal antitrust laws. However, these arrangements may also be resulting in higher prices for patients similar to what happens after more formal healthcare merger and acquisition deals, the study published in Health Affairs indicated.

On average, a national commercial insurer paid 4 percent more for office visits when provided by independent practices in health system-led ACOs in the Medicare Shared Savings Program (MSSP) compared to independent practices not part of an ACO.

 However, these price jumps were rare, the study found using claims and enrollment data from 2010 to 2016. The price increases were driven by just 7.4 percent of the ACO-affiliated practices studied, which received a 49.3 percent average price increase after joining the system-led Medicare ACO.

Overall, the limited size and scope of the price increases among practices in system-led Medicare ACOs implied a small impact on market practices. “Nevertheless, as study practices remained independent from health systems, our results suggest that participation in system-led MSSP ACOs facilitated price increases without mergers or acquisitions,” researchers stated.

The evidence points to joint negotiation between independent practices and health systems part of the same ACO, not necessarily quality improvements.

“Price jumps raised prices to the levels received by health systems, and prices tracked with health systems’ faster price growth after these jumps,” they explained. “Furthermore, price jumps most frequently occurred soon after the approximate start of permissible joint contracting outlined by the antitrust ACO guidance, and jumps were concentrated within a subgroup of system-led ACOs consistent with system-level behavior.”

Additionally, researchers said the timing of the price increases suggested that quality improvement did not impact prices because practices would have had to improve performance “dramatically immediately upon ACO entry.”

“[O]ur results are more consistent with a transference of existing pricing power from ACO-leading systems to a limited number of smaller independent practices through joint contracting,” the study stated.

But the study is more of a cautionary tale rather than a call for antitrust scrutiny of ACO arrangements, researchers said.

ACOs have been explicitly exempted from traditional antitrust scrutiny by the Federal Trade Commission and the Department of Justice. The agencies have considered the arrangements between provider organizations as “consistent with the indicia of clinical integration.”

This guidance may have encouraged participation in ACOs—which are some of the largest value-based care delivery and payment models to date—but it also may have created a substitute for healthcare mergers and acquisitions.

“The transaction costs of adding a practice to an MSSP ACO are likely lower than those incurred through acquisition, and some providers may value independence over system ownership or employment. Thus, joint negotiation relationships may reflect a unique organizational form that stands apart from traditional consolidation and whose growth and value should be more thoroughly studied,” researchers stated.