Address grouping for distributed service rules

Some embodiments provide a method for a network controller that manages a flow-based managed forwarding element (MFE). The method receives multiple service rules for implementation by the MFE. Each service rule matches over a set of network addresses. At least one network address is in the set of network addresses for at least two service rules. The method groups the network addresses into non-overlapping groups of network addresses, each of which addresses that are all matched by only a same set of service rules. The method generates flow entries that match over the groups of network addresses for the MFE to use to implement the service rules.