Washington is still arguing over every facet of the healthcare reform plan passed by Congress last summer. Now, antitrust regulators and dealmakers are caught up in the disputes too.

Conservatives oppose the dramatic expansion of federally funded coverage for the uninsured. And they deride the various revenue-generating and cost-cutting measures drawn up by the White House and the law's Democratic authors to offset the cost of expanding the safety net, including the requirement that everyone purchase some type of health coverage. In all, supporters of the healthcare reform law predict these revenue raisers and cost savers will generate $575 billion that can be put toward the cost of expanding coverage for the uninsured. Whether those funds will actually materialize is a matter of great debate.

Accountable care organizations, or ACOs, are another source of dispute. They are expected to be joint ventures or mergers between physicians' groups or between doctors' practices and hospitals. ACOs are a key savings mechanism envisioned in the reform law. The congressional budget estimates that through efficiency improvements and better coordination of patient care, ACOs can save $5 billion over the next decade.

But it's not clear that healthcare providers will want to form the organizations. And for practitioners who do, there is no guarantee that they'll be able to achieve that level of savings. Meanwhile, regulators, providers and insurers are furiously debating whether they are likely to engage in price fixing or violate antitrust law, and they are haggling over the rules under which these organizations should operate.

Federal officials face a dilemma. For the past decade, antitrust enforcement, particularly by the Federal Trade Commission, has taken a hard line against coordination between providers, including hospitals and physicians' groups, in negotiating reimbursement rates with payers like Medicare or private insurers.

But a core tenet of the new healthcare law is that costs can be brought down industrywide if physicians and hospitals more effectively coordinate patients and share in the costs savings that will arise from eliminating unnecessary treatments or improving the health of chronically ill patients enough to reduce their time in the hospital.

The risk of allowing greater coordination between providers is this: Doctors and hospitals will be able to gain market power by banding together and using that leverage to achieve higher fees from insurers and patients without providing any of the sought-after improvements in quality of care or cost savings. It's not at all clear how this tension will be resolved.

The Affordable Care Act calls for ACOs to begin serving Medicare patients in January 2012. The hope is that the organizations will be expanded to help patients served by private insurers once ACOs have proved their worth in the Medicare arena. The Centers for Medicare & Medicaid Services, or CMS, which administers the federal healthcare programs for the elderly and the poor, on March 31 unveiled proposed rules for ACOs' participation in the Medicare Shared Savings Program, which was established by the healthcare reform law last summer. CMS envisions ACOs as groups of healthcare providers that join together to improve the quality and lower the cost of treating Medicare beneficiaries assigned to them.

"Our current healthcare system is fragmented and developed in pieces -- hospital, office practices, home healthcare clinics," said CMS administrator Donald Berwick in a press call when the proposal was unveiled March 31. "These pieces have not had conscious or well-designed connections among them. Fragmentation of payments, especially fee-for-service payments, reinforces fragmented care -- and patients and families and providers pay the price. Tests get repeated unnecessarily. Patients wander from one specialist to another without efficient coordination."

The goal of ACOs is to improve the quality of care for their assigned population while reducing per capita costs. ACOs will receive cash bonuses from CMS if they can demonstrate that they've met those goals. To make all this possible, they are expected to create and support sophisticated databases that track all of a patient's treatments, regardless of which practice or hospital provided them.

ACOs must participate in the shared-savings program for no less than three years and must have a formal legal structure that will allow them to receive and distribute bonuses for shared savings to their participants. Each ACO must include a sufficient number of providers to treat at least 5,000 patients. They must also establish both clinical and administrative management structures.

To patients, ACOs will probably resemble health maintenance organizations that became prevalent in the 1980s. Like HMOs, they would offer a network of providers from which to choose. But there would be important differences. For starters, ACOs would not be organized by insurers but by hospitals and physicians. And patients would be permitted to utilize physicians outside the ACO to which they've been assigned. The right to choose a doctor is a big plus for many patients; indeed, being forced to seek treatment from only doctors in a network is one of the most disliked features of HMOs.

John Reynolds, president of Fidelity National Information Services Inc.'s healthcare, government and biller solutions, a provider of medical billing technology, says ACOs will be a big improvement over HMOs in the eyes of physicians. "They will put providers in a different place than in the past," he says. "Providers will be more in the driver's seat in terms of determining care."

Like HMOs, the ACOs will aim to reduce the amount of treatment patients receive. But ACOs have more tools to accomplish that without reducing the quality of care, Reynolds says. "No matter how you look at it, there are going to have to be some constraints on spending," he says.

Two decades ago, the information services necessary to effectively coordinate care and eliminate wasteful treatments were simply not available. Instead, HMO administrators dictated what treatments patients could receive in a way that often seemed bureaucratic and arbitrary. "This will be a massive change in the way data is evaluated to measure the quality of care and the impact of wellness efforts," Reynolds says.

One critical change from current practice will be to make information public that traditionally has been jealously guarded by insurers and doctors. Data on how much individual doctors are paid for various procedures and how effective their treatments have been is essential to identifying which treatments work, which are overused and which patients need more coordinated care. "Previously, this information has been highly confidential," says Pradeep Goel, CEO of Consumer Health Technologies Inc., which provides technology for healthcare benefit administration.

CMS is relying on its bonus system to incentivize doctors and hospitals to reduce procedures and hospital admissions. Better communication and record sharing should be particularly effective against chronic conditions such as diabetes and hypertension, by reducing the number of expensive hospital visits and improving long-term health. Because savings would be achieved by reducing actual services, the bonuses would be shared across ACO membership in order to offset the lost revenue some hospitals and doctors will suffer.

The specifics of how ACOs should operate remain highly contentious. CMS was originally expected to issue its proposal in January, but bickering among doctors, hospitals and insurers delayed completion. Now that the rules are out, different sectors of the healthcare industry are lobbying for changes.

Insurers want to prevent ACOs from raising fees on privately insured individuals as a way of making up for revenue lost from Medicare patients. Hospitals and doctors' groups want stronger protections from being held financially responsible for patients who seek treatment outside the ACO or from being penalized if providers fail to hit their savings targets.

For their part, specialists are concerned that their right to form ACOs could be lost in the lobbying leading up to CMS issuing the final rules. Alex Valadka, an Austin, Texas, neurosurgeon and spokesman for the Alliance of Specialty Medicine, says specialists should not be forced into arrangements with hospitals in order to form ACOs. "We will remain heavily engaged in the rulemaking process to make certain that specialists will be permitted to form ACOs, and access to specialty care will not be put at risk by new regulations," he said in statement released when CMS unveiled its proposal.

Meanwhile, the new law presents a challenge for accepted notions of antitrust enforcement. Collaboration between unaffiliated physicians, particularly when it comes to negotiating prices with payers such as Medicare or private insurers, is considered illegal. The FTC has aggressively sought to undo doctors' groups that have banded together to negotiate reimbursement rates with insurers when those doctors are not part of an integrated practice group.

To head off that collision, the Department of Health and Human Services and the CMS took the lead on drafting the proposed rules, with the FTC and the Department of Justice preparing guidance to help healthcare providers set up the organizations without running afoul of antitrust rules.

ACOs are not exempt from antitrust laws, and either the FTC or the DOJ will have to determine whether any specific arrangements violate competition laws. But the CMS plan does grant certified ACOs more flexibility negotiating rates with insurers than antitrust law currently allows providers.

Under the antitrust guidance prepared by the FTC and the DOJ, prospective ACOs formed by joint ventures or other nonmerger arrangements would be entitled to an expedited 90-day review for competition concerns. ACOs must be large enough to serve a minimum of 5,000 patients and will be able to hold large market shares. ACOs that have market shares of 30% or less would be exempt from antitrust review. Those with between a 30% and 50% share could establish themselves without antitrust approval, but the agencies would have discretion to launch a review if they believe it necessary.

The safe harbors do not apply to ACOs formed by mergers, which will be subjected to full antitrust reviews under the normal horizontal merger guidelines of the FTC and DOJ.

Despite the extra scrutiny, mergers are likely to be an attractive method of forming ACOs, says Tim Greaney, co-director of the Center for Health Law Studies at St. Louis University School of Law, particularly for hospitals looking to add physicians' groups to their networks. ACOs offer a "strong impetus for integration," he says. "A lot of activity has been spurred by the act."

According to Irving Levin Associates Inc., the improving economy and passage of healthcare reform prompted a wave of hospital dealmaking in the second half of 2010. There were 48 hospital mergers and acquisitions announced during the second half of 2010, which accounted for 62% of the 77 deals penned in the sector in all of 2010. The number of 2010 deals was up 33% from the 52 reported in 2009.

The value of hospital dealmaking rose even more dramatically in 2010. The $12.6 billion committed to hospital M&A in 2010 was up 86% from the $1.7 billion in 2009. In fact, the number of deals reported in 2010 was the highest since 2001, when 82 deals were reported.

Despite the formal welcome that antitrust regulators say they are offering ACOs, it's not clear that they will embrace M&A as a tool for more coordinated healthcare offerings. On March 29, a federal district judge granted the FTC's request for a preliminary injunction blocking the takeover of St. Luke's Hospital in Toledo, Ohio, by local rival ProMedica Health System Inc. Executives from both hospital organizations had argued that the FTC's attempting to stop their merger ran counter to the healthcare law's goal of encouraging greater coordination between providers. The merger was necessary, they further argued, for St. Luke's to join ProMedica's ACO and fund the installation of an electronic medical records system.

he FTC opposed the merger on grounds that the acquisition would reduce the number of independent acute-care hospitals in Lucas County, Ohio, from four to three and would give ProMedica a market share of close to 60%. An in-house FTC trial permanently breaking up the deal is scheduled for May 31.

Judge David Katz of the U.S. District Court for the District of Northern Ohio sided with the FTC. Blocking the merger would not preclude St. Luke's from forming an ACO with ProMedica or any other area hospital, he wrote in his opinion. "The savings achieved by an ACO can be shared via contractual relationships, joint ventures, and other methods besides mergers," Katz added. He predicted that absent the merger, St. Luke's would participate not only in ProMedica's ACO but one likely to be offered by another local rival, Mercy Health Partners.

Despite a desire to make ACOs prevalent, FTC Chairman Jon Leibowitz insists that the agencies won't overlook truly anticompetitive consolidation or collusion. "We are not going to roll over and play dead and see a bunch of consolidation," he told lawyers attending the American Bar Association's spring meeting April 1.

The agencies have listed five types of conduct ACOs should avoid to reduce the likelihood of antitrust violations. First, they may not prevent or discourage commercial payers from directing or incentivizing patients to choose certain providers -- including providers that do not participate in the ACO -- through "anti-steering," "guaranteed inclusion," "product participation," "price parity" or similar contractual provisions. Second, they may not tie sales of their services to the commercial insurers' purchase of other services, including providers affiliated with hospital networks that are participating in an ACO. Nor may ACOs enter exclusive contracts with specialists, hospitals, ambulatory surgical centers or other providers. Fourth, ACOs may not prevent insurers from sharing data with patients about providers' quality performance and costs. And finally, ACOs' provider participants may not share competitively sensitive pricing or other data that they could use to set prices or other terms for services they provide outside the ACO.

Comments on the FTC-DOJ proposal are due May 31.

FTC Commissioner Thomas Rosch, who has warned against making it too easy for providers to establish ACOs, says he's generally supportive of the proposed antitrust criteria. However, he continues to oppose the notion that the FTC and the DOJ will share responsibility for reviewing such organizations for competitive concerns.

The FTC, he says, has much more experience reviewing mergers and cooperative arrangements between healthcare providers. He has also reiterated his belief that the presence of former DOJ officials in the lobbying ranks of the American Hospital Association throws into question the DOJ's objectivity. "If those factors are taken into account, the Antitrust Division would play no substantial role in antitrust review and enforcement respecting ACOs," he says.

DOJ spokeswoman Gina Talamona dismisses any suggestion that her agency lacks either the experience or the independence to make appropriate judgments on ACOs.

"The Antitrust Division has extensive experience in, and a long history of, reviewing healthcare matters," she says. "The department continues to work closely and effectively in an interagency process with the Department of Health and Human Services, CMS, the IRS and the FTC that focuses on crafting the necessary procedures for implementing ACOs and health insurance exchanges while preserving strict antitrust enforcement."

She notes that the DOJ just filed a lawsuit and settlement with Texas hospital United Regional Health Care System for monopolization. "The department makes its decisions based on the facts and the law," she says. "This administration has imposed the toughest ethics standards in history, and every member of the Antitrust Division is adhering to those strict rules."

The FTC's Leibowitz has not echoed Rosch's concerns and praises the collaborative effort with the DOJ.

Still, important issues must be worked out among antitrust regulators before providers have a clear picture of how they will be permitted to structure ACOs. Rosch has long held that physicians' groups, even if they have integrated some portion of the clinical component of their practices, may be violating antitrust law if they jointly negotiate rates without also integrating their financial operations and bearing some incentive to produce the efficiencies and cost savings ACOs make possible.

Christine Varney, head of the DOJ's Antitrust Division, has argued that the benefits of ACOs may warrant flexibility on financial risk sharing. "We should be receptive to new and innovative forms of provider arrangements that do not necessarily involve financial risk sharing," she said at a forum on ACOs sponsored by the Center for American Progress in January. The antitrust regulators are working with CMS "to ensure that ACOs or other innovative delivery systems do not result in price fixing or anticompetitive consolidation."

In the end, the amount of financial risk sharing that antitrust regulators demand may determine whether ACOs play a meaningful role in bringing down healthcare costs. Erik Johnson, senior vice president at consulting firm Avalere Health LLC, questions whether many healthcare providers will be interested in forming ACOs under the proposed rules. The CMS plan requires participants to bear some financial risk if cost savings and quality improvements do not materialize. He says similar types of risk bearing through managed care in previous decades ultimately fell out of favor with providers.

ACOs have "gotten less attractive over the last year as providers think through what this actually means," he says. "Providers are not sure they want to manage more risk."

Under the CMS plan, ACOs will receive lower revenue if their performance measures are below industry averages. "Less mature" networks will have the option of delaying penalties until the third year of operation. "There would be no way to avoid risk in year three," Johnson says, noting the three-year minimum on participating in the shared savings program.

He concedes that leaps in information technology and improvements in treatment guidelines and quality measures make the benefits of coordinated care much more achievable than they were 20 years ago. Nevertheless, he predicts that the CMS goal of establishing 75 to 100 ACOs in the next three years is excessively optimistic. "If 100 are formed," he says, "that would really be a success for CMS."