ACOs enable collaboration between hospitals and physicians because of protections provided under the healthcare reform law.
According to the Federal Trade Commission's director of the Bureau of Competition, "[t]he Affordable Care Act (ACA) does not require providers to merge or consolidate and recognizes that ACOs may be formed through contractual arrangements that are well short of a merger."
This is sage advice considering that post-ACA, the Federal Trade Commission (FTC) has been successful in blocking various mergers for anti-trust violations under both the Sherman Anti-trust Act and the Clayton Act of 1914.
In "Federal Trade Commission v. ProMedica Health Sys., Inc.," (N.D. Ohio, Mar. 29, 2011) the FTC's motion for a preliminary injunction preventing defendants from further consolidation was granted. This was due in part to the classification of it being a flailing firm and not a failing firm. A merger with a failing entity may make the transaction permissible. From an anti-trust perspective, this means that potential adverse effects on consumers and anti-competition outweighed the consumer efficiencies.
A recent New York Times article articulated the tension between physicians and hospitals and the FTC. On the one side of the coin, providers claim, "they must collaborate to survive and thrive under the Affordable Care Act," while the FTC contends that "the health care law did not repeal the antitrust laws." This is where ACOs provide a viable option for physicians and other entities to balance these two interests.
Collaboration is distinct from a merger. A collaboration is best thought of as an arrangement between two entities to achieve a common goal. ACOs enable this because of the "waivers" provided under the healthcare reform law. A waiver is an exemption or "safe-harbor" from liability for ACOs. This is one incentive to form these types of entities. Yet, waivers from anti-trust laws are not the only benefit of forming an ACO - other waivers include the Stark and anti-kickback laws. Yet, it is important to remember that certain parameters must be met for an ACO to be viable.
By forming an ACO, physicians reduce the risk of an anti-trust violation. In turn, this translates to less money being spent on legal fees, as well as time dealing with the issues, as well as lost revenues.
Disclosure: Rachel V. Rose is the co-author of the American Bar Association’s book "The ABCs of ACOs."