Moving the HME Industry Forward

General Healthcare

Negotiating with MCOs: Avoid Antitrust Pitfalls

Jeffrey S. Baird, JD • March 24, 2018

AMARILLO, TX – As Pam Colbert and I have discussed in recent articles, approximately 70% of Medicaid patients nationwide are covered by Medicaid Managed Care Plans. Approximately 35% of Medicare patients are covered by Medicare Managed Care Plans…also known as Medicare Advantage Plans. For purposes of this email, I will collectively refer to Medicare and Medicaid Plans as “Plans.” 

It is frustrating for DME suppliers to negotiate with Plans. A Plan will often say to suppliers: “These are the reimbursement rates. Take them or leave them.” Sometimes, the reason for the Plan taking such a hard line stance is because (i) the Plan wants to work only with one “preferred supplier” and (ii) by offering low ball reimbursement, the Plan hopes to drive other suppliers away from the Plan so that the preferred supplier is the “last man standing.” When a Plan does take such a hard line stance, there are several responsive steps that suppliers can take, including the following:

  • Talk to Medicaid – Some Medicaid programs, when they sign a contract with a Plan, will figuratively “wipe their hands” and take the position that the Medicaid patients are no longer their responsibility…rather, they are the Plan’s responsibility. Such an attitude is irresponsible but it happens too often. Other Medicaid programs truly care about their patients. Even after they sign a contract with a Plan, they are still concerned about the welfare of their patients. Regardless of the attitude of the Medicaid program, suppliers should talk to the Medicaid program and voice their concerns about how the reimbursement reduction will negatively impact patient care. A persuasive argument can be that if the Medicaid patient does not receive a good quality product and good quality service, then the patient’s condition will deteriorate…thereby resulting in larger outlays of money by the Medicaid program. Some Medicaid programs will be persuaded to intervene and work with the Plan to either not reduce the reimbursement or at least to lessen the reduction.
  • Facilitate the Sponsorship of Legislation – Aggrieved DME suppliers can work with key state legislators to sponsor a bill that restricts Plans’ authority to reduce reimbursement.
  • Go to the Press – Medicaid programs do not like to be embarrassed. And state legislators, who oversee Medicaid programs, do not like to be embarrassed. It is worthwhile for DME suppliers to get the word out as to how the cuts in reimbursement will affect patient care. Such a media campaign can include Facebook and other social media, newspapers, and television.
  • Talk to State Legislators – DME suppliers can take to the State Representatives and Senators who have oversight over the Medicaid program.
  • Use of State DME Association – Rather than one DME supplier or an ad hoc group of suppliers taking the steps described above, it will be more effective if the state’s DME association takes the lead.

It is human nature for a group of DME suppliers to want to approach the Plan and say: “Either pay us $___ or none of us will accept the reimbursement cuts.” This approach is unacceptable under the law. More specifically, this approach will violate federal and state antitrust laws.

The basic federal antitrust statutes are sections 1 and 2 of the Sherman Act, section 7 of the Clayton Act, section 5 of the Federal Trade Commission Act, and the Robinson-Patman Act. Additionally, states have their own antitrust laws. For example, Illinois has the “Illinois Antitrust Act”, which in relevant part states:

  • Sec. 3. Every person shall be deemed to have committed a violation of this Act who shall:

(1) Make any contract with, or engage in any combination or conspiracy with, any other person who is, or but for a prior agreement would be, a competitor of such person:

  1. for the purpose or with the effect of fixing, controlling, or maintaining the price or rate charged for any commodity sold or bought by the parties thereto, or the fee charged or paid for any service performed or received by the parties thereto;
  2. fixing, controlling, maintaining, limiting, or discontinuing the production, manufacture, mining, sale or supply of any commodity, or the sale or supply of any service, for the purpose or with the effect stated in paragraph a. of subsection

Section 1 of the Sherman Act prohibits agreements that unreasonably restrain competition. Reasonableness of a restraint depends on (i) the degree of the adverse effect on competition and (ii) the degree of any procompetitive effects from the restraint. Violation of the Sherman Act is a felony punishable by a fine of up to $10 million for corporations, and a fine of up to $350,000 or three years imprisonment (or both) for individuals, if the offense was committed before June 22, 2004. If the offense was committed on or after June 22, 2004, the maximum Sherman Act fine is $100 million for corporations and $1 million for individuals, and the maximum Sherman Act jail sentence is 10 years. Under some circumstances, the maximum potential fine may be increased above the Sherman Act maximums to twice the gain or loss involved.

Under antitrust provisions, there is the basic idea that “agreements of a type that always or almost always tends to raise price or to reduce output are per se illegal. (See Broadcast Music, Inc. v. Columbia Broadcasting Sys., 441 U.S. 1, 19-20 (1979)).” Types of agreements that have been held per se illegal include agreements among competitors to fix prices or output, rig bids, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce. The courts conclusively presume such agreements, once identified, to be illegal, without inquiring into their claimed business purposes, anticompetitive harms, procompetitive benefits, or overall competitive effects.

An exception to these per se illegal agreements includes competitor collaborations. In such collaborations, participants in an efficiency-enhancing integration of economic activity enter into an agreement that is reasonably related to the integration and reasonably necessary to achieve its procompetitive benefits. Government enforcement agencies then analyze the agreement under the rule of reason, even if it is of a type that might otherwise be considered per se illegal.

In an efficiency enhancing integration, participants collaborate to perform or cause to be performed one or more business functions, such as production, distribution, marketing, purchasing or R&D, and thereby benefit, or potentially benefit, consumers by expanding output, reducing price, or enhancing quality, service, or innovation. Participants in an efficiency-enhancing integration typically combine, by contract or otherwise, significant capital, technology, or other complementary assets to achieve procompetitive benefits that the participants could not achieve separately. The mere coordination of decisions on price, output, customers, territories, and the like is not integration, and cost savings without integration are not a basis for avoiding per se condemnation.

Price Fixing

“Price fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold.” It is not necessary that the competitors agree to charge exactly the same price, or that every competitor in a given industry joins the conspiracy. Price fixing can take many forms, and any agreement that restricts price competition violates the law. Examples of price-fixing agreements include those to:

–     establish or adhere to price discounts

–     hold prices firm

–     eliminate or reduce discounts

–     adopt a standard formula for computing prices

–     maintain certain price differentials between different types, sizes, or quantities or products

–     adhere to a minimum fee or price schedule

–     fix credit terms

–     not advertise prices

Collective Provision of Information

Suppliers’ collective provision to Plans of factual information concerning the suppliers’ current or historical fees or other aspects of reimbursement, such as discounts or alternative reimbursement methods accepted (including capitation arrangements, risk-withhold fee arrangements, or use of all-inclusive fees), is unlikely to raise significant antitrust concerns and will not be challenged by government enforcement agencies, absent extraordinary circumstances. Such factual information can help Plans efficiently develop reimbursement terms to be offered to suppliers and may be useful to a Plan when provided in response to a request from the Plan or at the initiative of suppliers. The following guidelines should be followed:

  • the collection is managed by a third party (e.g., a Plan, government agency, health care consultant, academic institution, or trade association);
  • although current fee-related information may be provided to Plans, any information that is shared among or is available to the competing suppliers furnishing the data must be more than three months old; and
  • for any information that is available to the suppliers furnishing data, there are at least five suppliers reporting data upon which each disseminated statistic is based, no individual supplier’s data may represent more than 25 percent on a weighted basis of that statistic, and any information disseminated must be sufficiently aggregated such that it would not allow recipients to identify the prices charged by any individual supplier.

The conditions that must be met for an information exchange among suppliers to fall within the antitrust safety zone are intended to ensure that an exchange of price or cost data is not used by competing suppliers for discussion or coordination of supplier prices or costs. They represent a careful balancing of a supplier’s individual interest in obtaining information useful in adjusting the prices it charges or the wages it pays in response to changing market conditions against the risk that the exchange of such information may permit competing suppliers to communicate with each other regarding a mutually acceptable level of prices for health care services.

Talking Points

If a group of DME suppliers and a Plan sit down to discuss the reimbursement paid by the Plan, then the following talking points should be followed:

  • While the meeting participants will share their positions, and exchange information, the purpose of the exchange is not to reach an agreement – but rather – to exchange ideas. The participants may talk about parameters, tolerances, and win-win situations for both sides. The suppliers might share some historical figures to outline industry practices that have benefited patients, suppliers, and the Plan in the past.
  • No one is allowed to state a refusal to contract with either side. Specifically, suppliers will not threaten a group boycott of the Plan…and the Plan will not threaten to terminate contracts with the represented suppliers.
  • The focus of the meeting encompasses two main ideas: (i) the purpose of the meeting is to discuss patient care within the parameters of basic business logic; and (ii) to explain that the suppliers’ general business purpose is to make a modest profit for services provided while also ensuring that the existing level of patient care is maintained.

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or jbaird@bf-law.com.