Author:Sproulf, Zachary E.
Position:New York's Delivery System Reform Incentive Payment

Introduction 876 I. New York's DSRIP Program and COPA Antitrust Immunity 879 II. The Conflict Between Health Care Reform and Antitrust Enforcement: The Role of the State Action Immunity Doctrine 882 A. Efficiency and Quality Through Collaboration: The Basis for Health Care Reform 882 B. Antitrust Enforcement in Health Care and the Role of the State Action Doctrine 884 III. The Viability of New York's COPA Immunity Efforts Under the State Action Doctrine 888 A. The Implications of New York's COPA State Action Statute 889 B. The COPA Statute and the Clear Articulation Requirement 891 C. The COPA Monitoring Regulations and the Active Supervision Requirement 895 1. DSRIP-PPS Merger Scenario 900 2. DSRIP-PPS Clinical and Financial Integration Scenario 902 IV. Recommendations 904 Conclusion 907 INTRODUCTION

Enacted on March 23, 2010, the Patient Protection and Affordable Care Act ("ACA") promised sweeping reforms to address the dramatic rise in American health care costs that continued unchecked throughout the previous decade. (1) These rising costs stemmed from factors including increasing prices for drugs, medical equipment, and hospital services. (2) Spending for Medicaid, the joint federal and state program that covers uninsured, low-income Americans, rose 5.3% annually between 2001 and 2010. (3) New York traditionally spends more money on Medicaid than any other State. (4) For example, in 2005, New York (5) spent roughly forty-five billion dollars--fifteen percent of the total spent nationally on Medicaid. (6) To control social health care spending, the ACA promotes the formation of Accountable Care Organizations ("ACOs"), or groups of health care providers that collaborate by pooling resources, information, and services to generate efficiencies in care delivery while simultaneously lowering costs. (7) New York followed suit in 2014, initiating its Delivery System Reform Incentive Payment ("DSRIP") Program, which, through an agreement with the U.S. Center for Medicaid and Medicare Services, reinvests approximately eight billion dollars to promote the creation of Performing Provider Systems. (8) A Performing Provider System ("PPO") is a form of ACO meant to improve the quality of care and reduce the costs attributable to Medicaid. (9)

However, increased collaboration among competing health care providers can create antitrust problems, as a PPS is a state-created cartel. (10) Collaborations or combinations among rivals may reduce the number of competitors in the market and result in increased prices and reduced alternatives from which consumers may choose. (11) To protect its health care reform efforts from antitrust enforcement, the New York State Government has given each PPS the option to apply for a Certificate of Public Advantage ("COPA"). A COPA is a statutory mechanism that purports to provide certain collaborations with immunity from private or government actions under the federal antitrust laws by invoking the state action doctrine. (12) The Supreme Court established the state action doctrine, which protects states' ability to regulate their markets and displace competition in a manner inconsistent with the antitrust laws. (13) A private entity may raise state action immunity as a defense to an antitrust claim if (1) it engaged in anticompetitive conduct pursuant to a "clearly articulated and affirmatively expressed state policy to displace competition," (14) and (2) the conduct is actively supervised by the state. (15)

Although the New York COPA statute purports to provide broad antitrust immunity, it only vaguely forecasts the specific anticompetitive conduct and effects that the State will tolerate. As such, the COPA statute's substance most likely falls short of providing a clearly articulated policy as would be required for the state action doctrine to apply.

Further, it is unclear whether the regime satisfies the requirement of active state supervision. The COPA framework requires the New York Department of Health to monitor the providers' conduct and empowers the New York Attorney General to withdraw immunity and challenge conduct it deems outside the State's intended scope of collaboration. However, those remedies may be insufficiently meaningful. First, the State's broad terms of review do not provide clear guidance to participating collaborations, increasing the risk they engage in anticompetitive, prohibited conduct. Second, state agencies lack the intermediate power to control and correct the conduct, short of initiating antitrust enforcement litigation under federal and state law. Given that an antitrust challenge could threaten the legal viability of the entire PPS program and the State's overarching aim of promoting greater collaboration among health care providers, there are substantial disincentives for the State to bring an antitrust challenge against its own program. The State, therefore, may be inclined to tolerate substantial abuse of the COPA immunity, such as practices that arguably raise prices in the intermediate timeframe, before targeting the abuse. Without a meaningful tool to provide active supervision, and a clearly articulated policy, the state action doctrine is unlikely to provide immunity to the PPS regime. Without that immunity, the PPSs are cartels vulnerable to legal challenge.

However, there are several strategies New York might adopt to increase its success in invoking state action immunity to protect health care reform. For example, the legislature might amend the COPA statute to provide clearer guidance on permitted practices. As it stands, the statute covers an overly broad range of possible anticompetitive conduct and creates blanket immunity. (16) However, the State can improve its likelihood of satisfying the state action doctrine's "clear articulation" requirement if the State specifies the scope of permissible conduct and clarifies the circumstances in which immunity should apply. (17) Additionally, the New York Attorney General can refine the standards it will apply in reviewing COPA applications and PPS performance and strengthen its power to intervene with tailored, remedial action. With a clearer set of guidelines and the power to control anticompetitive conduct short of wholesale withdrawal of antitrust immunity, New York's COPA program stands a stronger chance of also satisfying the state action doctrine's "active supervision" requirement. (18)

This Note examines the question of whether New York's attempt to provide certain health care collaborations with immunity from federal antitrust laws comports with recent Supreme Court decisions clarifying the state action doctrine. (19) Part I describes New York's DSRIP Program and the accompanying COPA immunity framework. Part II examines the foundations of the ongoing policy debate over the role of antitrust law in health care reform and the principles of the state action doctrine as they apply in that context. Part III analyzes the viability of New York's COPA immunity under the state action doctrine. Part IV proposes a number of changes New York might consider to secure its immunity initiatives.


    On April 14, 2014, Governor Andrew M. Cuomo announced that New York had entered into a Medicaid Section 1115 Waiver Amendment agreement (20) with the U.S. Centers for Medicare and Medicaid Services. (21) This agreement enables New York to reinvest eight billion dollars in federal savings produced by Medicaid Redesign Team ("MRT") (22) reforms. Under the MRT Agreement, reforms will be implemented through the DSRIP Program, which allows health care providers in a given area who meet certain criteria to form collaborative units known as Performing Provider Systems or PPSs. (23) Such collaborations are designed to improve care quality and lower costs through improvement and innovation. (24) For example, the participating health care providers in a qualifying DSRIP PPS would share resources and information on the provision of medical services with the aim of providing more efficient, less redundant care in a given community. (25) According to Governor Cuomo, increasing collaboration among providers will simultaneously improve care quality while reducing avoidable hospital utilization by up to twenty-five percent over a five-year period. (26) The goal of such collaboration is to reduce the costs ultimately attributable to Medicaid. (27)

    Increased federal funding distributed by the DSRIP Program serves as the incentive for providers to aggressively pursue collaborative efficiency. (28) To apply for PPS status, providers must come together, form plans for their collaboration, and apply as a group. Each prospective PPS must serve a population of at least five thousand Medicaid members. Medicaid compensation for care delivery will depend on meeting certain efficiency benchmarks set and monitored by the State. (29) Typically, Medicaid reimburses providers for services at rates determined by the State. (30) The MRT Agreement terms make the level of funding provided by the federal government contingent on New York meeting overall performance goals, and may be reduced if savings and performance benchmarks are not met. (31)

    Health care providers may be deterred from creating PPSs because they fear such collaboration with competitors could expose them to antitrust enforcement. To combat this fear and encourage DSRIP collaboration, New York offers prospective collaborators the opportunity to apply for state action immunity under New York Public Health Law article 92-F ("the COPA statute"). (32) Pursuant to the COPA statute, the New York Department of Health promulgated regulations to govern the COPA application process, as well as monitor the PPSs' performance and competitive effects. (33) This performance review determines the levels of additional funding a PPS will receive from the State, and also serves to monitor and reevaluate a PPS's COPA status. To apply...

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