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While the Affordable Care Act (ACA) incentivizes mergers of hospitals, physician groups, and other providers and facilities, the FTC is scrutinizing mergers that would leave few local healthcare options for patients seeking care close to home in an effort to ensure competition is preserved and protected in the process. FTC Commissioner Julie Brill declared in a recent keynote address in Washington, D.C. that the ACA “is not a free pass” and promised to use the power of the FTC to step in to challenge suspect acquisitions. After a self-described “string of court losses in the mid- and late-1990s,” the FTC is now emboldened by what Commissioner Brill characterized as “an impressive string of victories under our belt” that have served to unravel numerous hospital mergers since 2007. Commissioner Brill specifically cited the FTC’s victory in ProMedica Health System, Inc. v. FTC, the first case in 15 years where a U.S. Court of Appeals reviewed and affirmed an FTC decision to block a hospital merger based on the FTC’s contention that higher market share would lead to higher prices. She also pointed to the FTC’s recent win in FTC v. St. Luke’s Health System, Ltd., where a federal district court held that a merger between St. Luke’s Health System, Idaho’s largest healthcare system, and Saltzer Medical Group, the state’s largest independent, multi-specialty physician practice, violated Section 7 of the Clayton Act.  Rejecting St. Luke’s argument that the acquisition was necessary to allow for lower costs and improved healthcare quality, as required by the ACA, the district court instead found that consumer healthcare costs would rise because the combined entity would be able to negotiate higher reimbursement rates from health insurance plans and raise rates for ancillary services, such as X-rays, to the higher hospital billing rate. As a result, the district court ordered St. Luke’s to fully divest itself of Saltzer’s physicians and assets.

Overlap between the ACA and antitrust law is a gray area

Numerous critics have charged that the ACA pits behaviors incentivized under the new law against those actively regulated by the FTC. Chief among such criticisms is the reality that the ACA attempts to financially reward hospitals based on outcomes rather than services completed by providers, and thus, pushes hospitals to pursue cutting costs by utilizing economies of scale, such as gaining leverage with suppliers and insurers. Consolidation is a logical way for hospitals to lower prices and produce better outcomes. Indeed, the ACA provides a mechanism to do exactly that through the creation of Affordable Care Organizations (ACOs). ACOs are groups of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated care to their Medicare patients.

Striking back against these critics, Commissioner Brill declared that, “[f]ar from being a barrier to pro-competitive collaboration envisioned in the ACA, antitrust [law] aligns naturally with the goals of ACOs...Antitrust law permits providers to engage in a wide array of legitimate collaborative activities, including ACO arrangements, as well as many mergers and consolidations, so long as the conduct is not likely to harm consumer welfare through higher cost or lowered quality.” While laudable in theory, this statement underscores the tension between antitrust law and the ACA. Specifically, at what point does consolidation cease to be efficient and instead become anti-competitive? The FTC’s recent victories provide some guidance: The St. Luke’s/Saltzer merger would have created a dominant single provider of adult primary care physicians in the Nampa, Idaho area with nearly 80 percent of the market, and would clearly present an opportunity for the resulting combination to engage in anticompetitive conduct to the detriment of the market. Less clear, though, is how large a market share is too large, such that consolidations might become subject to the FTC’s scrutiny.

Safe harbors for providers

The ACA provides certain safe harbors for ACOs that healthcare providers interested in consolidation or combinations should review. Under these provisions, ACO participants must possess a combined market share of 30 percent or less of each service throughout the ACOs Primary Service Area. In addition, hospitals and surgery centers must be non-exclusive, as must be dominant providers (i.e., those possessing a market share of 50 percent or more) of any service.

The ultimate goal of healthcare reform is to harness the power of competition by expanding coverage, improving quality, and controlling the cost of healthcare for all Americans. The role of antitrust law is to protect and preserve competition. Keeping the goals of the ACA and antitrust laws in mind, providers considering mergers or other combinations should work early in the process to formulate a sound rationale for how the deal can benefit customers. Because antitrust laws are largely based on individualized facts and circumstances, hospitals grappling with this question and related issues should retain experienced antitrust counsel at the outset to provide tailored, practical advice that will enable them to stay on the right side of the antitrust laws.

For questions regarding antitrust issues and the role our antitrust attorneys can play in developing effective compliance strategies individually tailored for your company’s needs, please contact one of the attorneys listed below.