New York State Health Care—DSRIP, PPSs, COPAs and Antitrust “Immunity”

New York has received permission to use over $8 billion in Medicare and Medicaid funds to revamp how healthcare is provided throughout the State. As part of this process, the New York State Department of Health (DOH) is encouraging, and sometimes, requiring, competing healthcare and other service providers to form collaborative groups (PPSs) and enter into other agreements. The DOH has stated that these groups may request certificates of immunity (a COPA) from the federal and state antitrust laws for those activities. Notwithstanding what the DOH has declared, it is not clear that antitrust immunity will be available for those groups or activities even if they apply for and receive a certificate.

New York State cannot unilaterally exempt parties from prosecution under the federal antitrust laws. Under the concept of “state action immunity,” a State may establish and actively operate a regulatory regime that displaces normal competition. Whether that regime does in fact sufficiently displace competition is a question of law and fact for a court.

In addition, the market in New York is replete with well-funded, legally sophisticated parties that are against immunity. These parties include a good number of the State’s major healthcare plans. The United States Federal Trade Commission regularly challenges ineffective state supervision under this doctrine, and a recent Supreme Court case, North Carolina State Board of Dental Examiners, has mobilized the plaintiffs’ bar.

Given how the DOH has structured the program, how many powerful parties are aligned against it, and the significant amount of money involved, healthcare providers in New York (and in other DSRIP states) should be cautious about engaging in behavior that might otherwise violate the antitrust laws. Even if one has a certificate of immunity or is explicitly directed by the DOH to engage in a particular activity, providers can nonetheless face meaningful antitrust risk. Ultimately, PPSs, and their members, should not assume immunity will be available. They should closely evaluate not only future COPA projects, but what the DOH is telling them to do under DSRIP as well.

Regulatory Background

New York State recently entered into an agreement with the Centers for Medicare and Medicaid whereby the State will be allowed to spend up to $8 billion of Medicare and Medicaid funds on reducing avoidable hospitalizations and restructuring the New York State health care delivery system. The New York State Department of Health has created a program to distribute these funds, the Delivery System Reform Incentive Payment (DSRIP) program. As part of this program, the DOH is requiring that healthcare and other service providers form groups, Performing Provider Systems, to apply for DSRIP funds. These PPSs are designed to be permanent fixtures of New York health care.

New York has the “Certificate of Public Advantage” law. It allows healthcare providers to apply to the DOH for a certificate of immunity from the antitrust laws. If the DOH grants the certificate, the parties may engage in the reported activity without triggering antitrust liability. It is a general purpose healthcare statute. The DOH must issue regulations with regard to how the statute is applied in any given situation and actively supervise the potentially exempted behavior. The DOH has recognized that the PPSs and other activities contemplated under the DSRIP program may raise antitrust issues. In response, the DOH has declared that the antitrust immunity afforded under the COPA law will be available to parties that apply for and receive a certificate and has issued regulations.

The Common Law of State Action Immunity

The DOH cannot simply declare activities immune from federal law. The state can, however, create a regulatory regime that can fully displace the federal antitrust laws. Under this doctrine, the “state action immunity” or Parker doctrine, otherwise anticompetitive activities are immunized from the antitrust laws if they are the intentional or foreseeable result of state or local government policy. The Supreme Court has held that there are two requirements for antitrust immunity under this doctrine: (1) the challenged restraint must be one clearly articulated and affirmatively expressed as state policy; and (2) the policy must be actively supervised by the State itself. There is some question whether the articulated policies of a state executive department or agency, if not specifically articulated in the legislation, constitute the action of the state itself. COPA can only invoke these concepts. A court decides whether the State has been successful.

The DOH Process

There is reason to believe that the State may not be successful. Under the Parker doctrine, the state must actively supervise the ostensibly immunized behavior. If it does not, the activity will fail to obtain immunity notwithstanding the state’s intent. The inquiry is not a one-time exercise. State supervision must be ongoing. And, at least according to the FTC, it is not enough that the board approve or casually review an activity: it should develop and evaluate an unbiased evidentiary record; supplement the record if appropriate; undertake a de novo review of the merits of the action; and issue written opinions. It should therefore not be sufficient for New York to declare that the participants in a PPS may agree on the price they charge for a particular service. The DOH would have to actively supervise that pricing scheme. Similarly, it should not be sufficient for the DOH to declare an otherwise anticompetitive merger exempt. They would likely have to supervise the merged parties post-consummation to insure that whatever anticompetitive activities they could engage in as a consequence of the transaction are monitored and approved. A broad certificate designed to exempt large categories of activities would likely not be sufficient.

Whether the DSRIP/COPA regime is valid “state action” under the doctrine is also unclear. The DSRIP program is a creation of the DOH, not the legislature. The PPS and DOH requirements like data-gathering are similarly a creation of the DOH. And, while the COPA law was passed by the Assembly and signed by the governor, the DOH and not the Assembly declared that COPA would be available to participants in its DSRIP plan.

The DOH has issued regulations with regard to the application of the COPA law to DSRIP activities. In part, the regulations provide that “[p]arties to a Cooperative Agreement or planning process may apply to the [DOH] for a [COPA] governing that Cooperative Agreement of planning process.” Section 83-2.2(b). The application must include a copy of the agreement, a description of the nature and scope of the agreement, a description of the consideration and other information. Id. The parties must publish notice on their website, and third parties may comment. The DOH is obliged to review the application, looking at both the “advantages” and “disadvantages.” 83-2.5. These disadvantages include reductions in competition. Id. The DOH must consult with the Attorney General and others. Section 83-2.6. The DOH may also impose conditions including, for example, implementation of a clinical integration plan, and achievement of quality benchmarks. Id. The regulations require filing annual reports. Section 83-2.9. The DOH may require reports to be filed with greater frequency. The regulations specify what must be addressed in the reports. Id. This information includes “price, cost and savings information, including efficiencies achieved and additional information as requested…” Id. The reports also include other information like an analysis of the benefits and expected benefits of the agreement covered by the COPA. Id. The DOH is obliged to review the reports and seek additional information if it appears that the parties are not living up to their commitments. And the DOH may revoke the COPA. Section 83-2.12.

This process does appear to be consistent with active supervision. A COPA can be for a particular agreement or activity. The DOH requires regular reports and has the power to ask for additional information or condition granting of the certificate on the parties making particular promises. The danger is that the DOH will not review the application or reports, or will not apply the standards with any rigor. It is also not clear to what extent the particular responsible individual or group at DOH will have the expertise to evaluate sufficiently the proposed activities. And while there is an external notice and comment provision, it’s unclear whether that process is sufficient to insure the DOH has a full and complete understanding of the application or the market necessary to make an informed decision. A failure at any of these points could raise significant issues given who the potential plaintiffs might be.

But Is There Real Exposure?

One may argue that if the State itself is directing a party to collect and disseminate data, to jointly negotiate the purchase of inputs, or even the terms of offering services, for example, that the spirit of Parker is certainly invoked and the activity should be immunized. Participants would certainly have a strong argument. In the absence of powerful antagonists, or case law that supports a rigorous review of process, it would be reasonable to conclude exposure and risk are not high.

But there are in fact powerful antagonists. Several of the State’s major health plans actively lobbied the Federal Trade Commission and Department of Justice to challenge the plan. They include the New York State Conference of Blue Cross and Blue Shield Plans, the National Federation of Independent Business, and the New York State Health Plan Association. And cases like North Carolina Dental have signaled to both the FTC and the plaintiffs’ bar that there is a meaningful chance of success. Given the complexity of the DSRIP regime and the presence of sophisticated plaintiffs that dislike the program, it would seem that there is meaningful risk.

Next Steps

The PPSs need competent antitrust counsel as part of their ongoing operations. PPSs are, almost by definition, groups of competitors. Their agreements, indeed even their very conversations within a PPS meeting, could create problems. The members of the PPSs too need to educate themselves on what is appropriate within this complex regime. And certainly the plans and the consumers that would be exposed to potentially anticompetitive activities should know what their rights are.

At the end of the day, there are ways for members as well as PPSs to operate as good citizens under DSRIP and not violate the antitrust laws. It is also possible to take advantage of COPA and DOH supervision to accomplish socially beneficial goals that might otherwise be unavailable, even given the problems inherent in the DSRIP implementation of COPA. These are complex exercises, however, that require a meaningful analysis not only of the proposed activity but how the state and the DOH can participate in the activity sufficiently such that the parties’ risks are managed properly.