Hospital Merger Runs Afoul of FTC

Forming an effective Accountable Care Organization (ACO) through a merger without running into trouble with the Federal Trade Commission's anti-trust rules may require walking a fine line and paying close attention to an evolving set of government rules and recommendations. In a case that drew national attention last week, the FTC is challenging the merger of ProMedica Health System of Toledo, Ohio, and St. Luke’s Hospital in Maumee, a Toledo suburb, According to a New York Times report, the trial shows the risks that arise when competing health care providers try to collaborate. In this case, the merger seems suspiciously profit motivated, according to the case presented by the government. The hospital chain ProMedica had negotiated higher reimbursement rates from insurers than the smaller St. Luke's, and shortly after the merger ProMedica approached insurers about raising the rates for services provided at St. Luke's. ProMedica contends that it rescued St. Luke's, which was losing money because its rates were set too low, and the merger would eventually have generated cost savings and improved patient care by enabling better coordination of care, instituting a system-wide electronic health record and creating standardized clinical protocols. Diagnostic imaging providers contemplating mergers in an environment where health care reform is encouraging collaboration between providers to lower costs should be aware that the FTC says it is currently looking into multiple cases of physician groups joining up with other groups or with hospitals. "Most accountable care organizations (ACOs) will not violate antitrust laws," said Gail Kursh, JD, deputy chief of the legal policy section of the antitrust division of the Department of Justice at the Second National Accountable Care Organization Summit in Washington, DC, in June, according to a Fierce Healthcare article. However, Richard A. Feinstein, director of the Bureau of Competition at the FTC told the New York Times that while mergers and collaborations have the potential to generate cost savings and quality benefits for patients, “in some cases, the arrangements can create highly concentrated markets that may harm consumers through higher prices or lower quality of care.” Meanwhile, some lawyers currently involved in helping health care organizations navigate the legal pitfalls of setting up an ACO say legal fees can quickly erase any potential financial benefit from forming such an organization. In a Law.Com blog post, Christi Braun, JD, a partner at Washington, DC-based Mintz, Levin, Cohn, Ferris, Glovsky and Popeo reported that one client has already spent $50,000 on economists and legal fees in the effort, "and we're not even halfway there." The fear, she added, is that the amount of shared savings an ACO may reap "may not cover the cost of the application."

Trends to Watch

Center for Studying Health System Change research on hospitals hiring independent physicians.U.S. News survey of hospital executives on ACOs.