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FTC Policy Paper Supports Agency’s Long-Held Position In Opposition To COPAs – Antitrust, EU Competition



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The Federal Trade Commission’s (“FTC”) competition
mission extends beyond enforcing the antitrust laws. It has the
authority to study competition law and policy questions, issue
reports, and advise state, local, and foreign governments on the
social benefits of private market competition. In this advisory
capacity, the FTC has often weighed in when state governments
consider proposals to limit competition among health care
providers. In particular, some states have Certificates of Public
Advantage (also known as “COPAs”) laws, a state-specific
regulatory regime designed to replace competition with regulatory
oversight. The state laws granting hospital monopolies shield the
hospitals from federal antitrust litigation because of the
judicially created state action doctrine. This doctrine holds that
anticompetitive activity is outside of the reach of federal
antitrust law if a state clearly articulates a policy to replace
competition with regulation and actively supervises the resulting
monopoly to ensure it is fulfilling the state regulatory
purpose.

Earlier this week, the FTC issued a policy paper highlighting
what it views as the pitfalls of using COPAs in an effort to
convince state regulators not to use them. Typically, the state
COPA regulations require merging parties to demonstrate that the
likely benefits of their proposed transaction outweigh the likely
disadvantages from the loss of competition. According to the
FTC’s paper, however, COPAs usually result in a single hospital
monopoly and are often detrimental to patient costs, patient care,
and health care worker wages. The FTC advocates against the use of
COPAs to shield what it views as otherwise illegal hospital mergers
and urges state lawmakers to avoid enacting them and to repeal
existing ones. The paper is the culmination of a policy project the
FTC announced in 2017 to assess the impact of COPAs on prices,
quality, access, and innovation for health care services. The
project included a review of past COPAs, a public workshop
highlighting practical experiences with COPAs, and an ongoing study
of recently approved COPAs.

The FTC paper summarizes research showing that several hospital
mergers subject to COPAs resulted in higher prices, reduced quality
of care, and slow wage growth for certain health care workers,
despite regulatory commitments designed to reduce anticompetitive
effects. According to the paper, hospitals seek COPAs when their
proposed merger would otherwise violate antitrust laws. The COPA
laws are enacted to replace competition among health care providers
with regulatory oversight by state agencies. States often impose
price controls, rate regulations, and other terms and conditions on
the COPA recipients in an effort to mitigate harms from the loss of
competition, but according to the FTC, such mitigation does not
work.

Hospital arguments in favor of mergers subject to COPAs are
flawed, according to the FTC paper. Hospitals commonly claim that
proposed mergers will result in cost savings and efficiencies that
will allow for clinical quality improvements. However, the paper
argues that hospital mergers do not result in significant
efficiencies. Improving financial conditions to better manage low
reimbursement rates resulting from health care reform is also cited
by hospitals seeking COPAs. But the paper argues that the hospitals
seeking COPAs have adequate financial resources to operate
independently. Hospitals also claim the proposed mergers will
create jobs and ensure local access to health care. The paper
argues, however, that those justifications are inconsistent with
the hospitals’ cost-saving projections that are premised on
facility consolidation, elimination of services, and job
reductions.

The FTC paper indicates that 10 COPA certificates have been
issued; seven of those cases involved mergers between the only two
general acute care hospitals serving a local region. COPA statutes
have been enacted and utilized in nine states — Minnesota,
North Carolina, Montana, South Caroline, Maine, West Virginia,
Tennessee, Virginia, and Texas. Indiana passed a COPA law in 2021
that has yet to be utilized; two hospitals in upstate New York
recently indicated that they would seek a COPA for their proposed
merger.

The FTC paper examines several case studies regarding grants of
COPA certificates to support its position in opposition to the use
of COPAs.

  • Mission Health System (North Carolina – 1995). Memorial
    Mission Hospital and St. Joseph’s Hospital, the only two
    general acute care hospitals in Asheville, North Carolina, entered
    into a collaboration in 1995 under the state’s COPA law. In
    1998, the hospitals then merged with approval from the state
    subject to certain conditions on margin, cost, physician employment
    caps, and quality and contracting commitments. The COPA was
    repealed in 2016. Empirical research shows that from 1996 to 2008,
    Mission Health increased prices by at least 20% more than peer
    hospitals. Another study found that the average price increased 25%
    through 2015 and another 38% after the COPA was repealed.

  • Benefis Health System (Montana – 1996). Benefis Health System
    was formed in 1996 pursuant to a COPA that allowed the only two
    general acute care hospitals in Great Falls, Montana —
    Columbus Hospital and Montana Deaconess Medical Center — to
    merge. The COPA included conditions on revenue caps, quality
    commitments, and other cost-saving commitments. In 2007, the state
    legislature passed a bill that terminated the COPA. Empirical
    research shows that Benefis’s prices closely tracked prices of
    peer hospitals in duopoly markets during the COPA period, but then
    increased at least 20% after the termination of the COPA.

  • Palmetto Health System (South Carolina – 1997). Baptist
    Healthcare System and Richland Memorial Hospital, two general acute
    care hospitals in Columbia, South Carolina, merged pursuant to a
    COPA to form Palmetto. During the initial five-year period of the
    COPA, Palmetto was subject to rate and revenue controls and
    commitments to achieve cost savings and to provide a portion of its
    revenues to fund public health initiatives and community outreach
    programs. Empirical research shows that Palmetto’s prices did
    not increase more than comparable hospitals when subject to the
    COPA conditions. (The paper notes that this may have been a result
    of the conditions or because hospital competition remained in the
    market.)

  • MaineHealth (Maine – 2009). In 2009, pursuant to a COPA,
    MaineHealth Acquired Southern Maine Medical Center — a
    hospital located 20 miles from MaineHealth’s flagship hospital
    in Portland, Maine. The combination resulted in a dominant share of
    patient discharges in Southern Maine’s service area. The COPA
    required MaineHealth to limit Southern Maine’s operating profit
    margin, reduce expenses, and expand access and maintain quality,
    but did not impose any conditions on the other MaineHealth
    hospitals. The COPA expired in 2015. Empirical research shows that
    during the COPA period, Southern Maine’s price increases
    compared to peers were not statistically significant. However,
    after the COPA expired, Southern Maine’s prices increased by
    almost 50%, and quality declined. And prices at MaineHealth’s
    flagship hospital, which was not subject to COPA terms, increased
    38% during the COPA period and 62% after.

  • Ballad Health System (Tennessee/Virginia – 2018).
    Mountain States Health Alliance and Wellmont Health System,
    competitors across state lines, merged to form Ballad under COPAs
    from both Tennessee and Virginia. Both COPAs imposed price caps,
    quality of care commitments, and a prohibition on certain
    contractual provisions. Modifications have been made to some of the
    terms, and there are concerns about a particular modification that
    allows Ballad the ability to oppose certificate of need
    applications by other providers seeking to enter the market. The
    FTC announced in 2019 that it would study the effects of the COPA
    on price, quality, access, and innovation.

  • Cabell Huntington Hospital (West Virginia – 2018). Cabell
    Huntington Hospital and St. Mary’s Medical Center, both located
    in Huntington, West Virginia, merged in 2018 after receiving COPA
    approval. The conditions included annual reporting, regulatory rate
    review, the prohibition of certain contracting practices, quality
    of care and population health commitments, and the maintenance of
    St. Mary’s as a free-standing general acute care hospital for a
    minimum of seven years. The COPA is set to expire in 2024. The FTC
    announced that it would also study the effects of this COPA on
    price, quality, access, and innovation.

  • Hendrick Health System/Shannon Health System (Texas –
    2020).Hendrick Health System and Shannon Health System both
    received COPA approvals for their respective mergers. The COPA
    conditions include regulatory rate review and reporting
    requirements. The FTC has stated that it will continue to monitor
    the effects of the COPAs.

The paper concludes that COPAs rarely work as promised. In
particular, because COPAs exacerbate the widespread problem of
hospital consolidation, they reduce hospital employee wage growth,
compliance with the COPA conditions is difficult to monitor, they
are susceptible to regulatory evasion, and they are temporary.

The vote to issue the staff report was 5 – 0, highlighting
the continued, multi-decade consensus among federal antitrust
enforcers that health care provider consolidation is a significant
priority. A lot of the news out of the FTC in the past year has
focused on divisions among the commissioners on policy priorities,
but health care remains an area of agreement — especially
when it comes to hospital mergers.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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