As discussed in a recent New York Times article1, there has been a significant increase in merger and acquisition activity involving health care providers. As a general matter, for providers to avail themselves of the various financial incentives contained in the health care reform legislation, as well as to alleviate the future impact of reimbursement cuts, health care providers have been looking at consolidation as a means to share costs and savings. Hospitals have taken the lead in terms of mergers, as well as the acquisition of physician practices. In each circumstance, the transaction must be structured in compliance with the fraud and abuse and tax laws and in particular, consideration given must be consistent with the fair market value. Fair market value is commonly determined through engagement of a third party valuation firm. It is essential that the consideration be found to be fair market value in an arms-length transaction and consistent with general market value, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. Similarly, under the tax-exempt rules, total compensation must be reasonable and the transaction must serve the business purposes of the charitable organization, if applicable. The transaction must also be structured to comply with applicable safe harbors and exceptions under the Anti-Kickback Statute and the Stark Amendment. Special attention needs to also be given to market power and antitrust concerns. As discussed below, the FTC has been actively looking at market power in light of the recent consolidation of health care providers.