For the past several years, the Federal Trade Commission (FTC) and the Department of Justice Antitrust Division (DOJ) have acted aggressively to protect competition in the health care industry. For example, the FTC has filed complaints to enjoin three separate proposed hospital consolidations in the last year.

 Interestingly, the Obama administration simultaneously has proposed and signed legislation that arguably reduces competition in health care by encouraging greater coordination among physicians and hospitals in the form of Accountable Care Organizations (ACOs). While the antitrust agencies’ aggressive enforcement in health care services and the passage of legislation aimed at encouraging greater coordination among providers may seem paradoxical, both have the same ultimate goal: lower health care costs and increased quality of care.  

The antitrust laws are predicated on the notion that protecting competition is the best way to ensure that consumers receive the lowest possible prices and the highest possible quality. Nonetheless, coordination of care among health care providers is critical in certain situations, and consolidation among providers often translates into significant cost savings. An ACO encourages competing physicians to coordinate care for a defined Medicare population by redesigning care protocols, utilizing health IT, investing in infrastructure and meeting quality targets. In some cases, these efficiencies outweigh the potential anticompetitive effect resulting from consolidation of providers.

Aimed at promoting greater coordination among health care providers to improve quality and reduce costs, the Affordable Care Act and Health Care and Education Reconciliation Act of 2010 call for providers, namely physicians and hospitals, to form ACOs to coordinate care for Medicare beneficiaries. In return, ACOs will receive a portion of the savings achieved by reaching certain standards of quality and efficiency.

Recognizing that ACOs formed for the purpose of participating in the Medicare Shared Savings Program might improve health care delivery for commercially insured patients, the FTC and DOJ sought to provide guidelines on how providers could form ACOs without running afoul of antitrust laws and issued the “Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program” (the “Policy Statement”). 

The “Policy Statement” sets out an antitrust safety zone for ACOs that meet Centers for Medicare & Medicaid Services (CMS) criteria for participation in the Shared Savings Program and hold less than thirty percent market share of the relevant area. Further, the “Policy Statement acknowledges that even for groups that exceed this threshold, efficiencies can be achieved if providers work together, take accountability for patient care and strive toward achieving target levels of quality and efficiency. However, the “Policy Statement” also set out the types of conduct that are viewed as particularly problematic to the agencies in order to discourage ACOs with significant market share from engaging in conduct that might lessen competition in spite of any efficiency gains. 

Theoretically, a similar weighing of the efficiencies versus potential anticompetitive effects arising from a hospital consolidation takes place both before the FTC decides to issue a complaint to block such a consolidation and when a court is asked to rule on that complaint. The antitrust agencies have recently grappled with the challenge of enforcing the antitrust laws against health care providers while also seeking to encourage practices that improve health care quality and efficiency.

In the FTC’s recent challenges to three separate hospital combinations—ProMedica Health System/St. Luke’s Community Hospital, Phoebe Putney Health System/Palmyra Park Hospital, and OSF Healthcare System/Rockford Health System—the FTC argued that the asserted efficiencies were not strong enough to outweigh the reduction in competition from the transactions. The administrative law judge who weighed the efficiencies in the FTC’s challenge of the ProMedica and St. Luke’s joinder  considered the Respondent’s assertion of efficiencies in the form of capital contributions, cost savings and clinical improvements, but ultimately found that the likelihood of harm outweighed the asserted efficiencies.  

Similarly, in the FTC’s challenge to Rockford Memorial Hospital’s acquisition, the court said that “extraordinary proof of efficiencies” is required to outweigh high market concentration and the FTC and the court will look skeptically on efficiency analyses not prepared in the ordinary course of business.

Therefore, provider groups that have a substantial share of the relevant market will likely receive scrutiny from the antitrust agencies if they attempt to form an ACO or engage in some other consolidation. And in either case, efficiency claims are not likely to be a silver bullet against the antitrust agencies. The agencies (and the courts) will require provider groups that have large market shares to offer significant, well-documented proof of efficiencies that cannot be gained apart from the proposed collaboration or consolidation.