FTC Guidance Document Supports Agency’s Longstanding Opposition to COPAs | Mintz – Antitrust Viewpoints
The Federal Trade Commission’s (“FTC”) competition mandate goes beyond the enforcement of antitrust laws. It has the authority to study competition law and policy issues, issue reports, and advise state, local, and foreign governments on the social benefits of competition in the private market. In this advisory role, the FTC has often weighed in when state governments consider proposals to limit competition among health care providers. In particular, some states have Certificate of Public Benefit (also known as “COPA”) laws, a state-specific regulatory regime designed to replace competition with regulatory oversight. State laws granting monopolies to hospitals protect hospitals from federal antitrust litigation due to the court-created doctrine of state action. This doctrine holds that anticompetitive activity is beyond the reach of federal antitrust law if a state clearly articulates a policy to replace competition with regulation and actively oversees the resulting monopoly to ensure that it fulfills the state regulatory objective.
Earlier this week, the FTC released a guidance document outlining what it sees as the pitfalls of using COPAs in an effort to convince state regulators not to use them. Generally, state COPA regulations require the merging parties to demonstrate that the likely benefits of their proposed transaction outweigh the likely harms of the loss of competition. According to the FTC document, however, COPAs generally result in a single hospital monopoly and are often detrimental to patient costs, patient care, and healthcare worker wages. The FTC argues against the use of COPAs to protect what it considers otherwise illegal hospital mergers and urges state lawmakers to avoid enacting them and repeal existing ones. The document is the culmination of a draft policy announced by the FTC in 2017 to assess the impact of COPAs on price, 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 document summarizes research showing that several hospital mergers subject to COPAs have resulted in higher prices, reduced quality of care and slow wage growth for some healthcare workers, despite regulatory commitments to reduce anti-competitive effects. According to the newspaper, hospitals seek COPAs when their merger proposal would otherwise violate antitrust laws. 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 COPA recipients in an effort to mitigate damage from loss of competition, but according to the FTC, such mitigation does not work. .
Hospitals’ arguments in favor of mergers subject to COPAs are flawed, according to the FTC document. Hospitals generally claim that proposed mergers will result in cost savings and efficiencies that will improve clinical quality. However, the paper argues that hospital mergers do not result in significant efficiencies. Improving financial terms to better manage low reimbursement rates resulting from health reform is also cited by hospitals applying for COPA. But the document argues that hospitals applying for COPAs have sufficient financial resources to operate independently. The hospitals also say the proposed mergers will create jobs and ensure local access to healthcare. The paper argues, however, that these rationales are inconsistent with hospital savings projections that are based on consolidating facilities, eliminating services and cutting jobs.
The FTC document indicates that 10 COPA certificates were issued; seven of these cases involved mergers between the only two general acute care hospitals serving a local area. COPA statutes have been enacted and used in nine states – Minnesota, North Carolina, Montana, South Carolina, Maine, West Virginia, Tennessee, Virginia and Texas. Indiana passed a COPA law in 2021 that has yet to be used; 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 COPA certificate grants to support its position against 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 state approval under certain conditions of margin, cost, ceiling on the employment of doctors, quality commitments and contractualisation. COPA was repealed in 2016. Empirical research shows that between 1996 and 2008, Mission Health increased prices by at least 20% more than peer hospitals. Another study found that the average price increased by 25% through 2015 and another 38% after the repeal of COPA.
- Benefis Health System (Montana – 1996). Benefis Health System was formed in 1996 under a COPA that allowed the only two acute care general 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 reduction commitments. In 2007, the state legislature passed a bill that ended COPA. Empirical research shows that Benefis prices closely tracked peer hospital prices in duopoly markets during the COPA period, but then increased by at least 20% after COPA ended.
- 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 COPA’s initial five-year term, Palmetto was subject to rate and revenue controls and commitments to achieve cost savings and provide a portion of its revenue to fund public health initiatives and community outreach programs. Empirical research shows that Palmetto prices did not increase more than comparable hospitals when under COPA terms. (The paper notes that this may have been the result of conditions or because hospital competition remained in the market.)
- Maine Health (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 the southern Maine service area. COPA demanded that MaineHealth limit southern Maine’s operating profit margin, reduce expenses, expand access and maintain quality, but placed no conditions on other MaineHealth hospitals. COPA expired in 2015. Empirical research shows that during the COPA period, Southern Maine’s price increases relative to peers were not statistically significant. However, after the COPA expired, prices in southern Maine rose nearly 50% and quality declined. And prices at MaineHealth’s flagship hospital, which was not under COPA terms, rose 38% during the COPA period and 62% after.
- Ballad Health System (Tennessee/Virginia – 2018). Mountain States Health Alliance and Wellmont Health System, competitors across the states, merged to form Ballad under the Tennessee and Virginia COPAs. The two COPAs imposed price caps, quality of care commitments and a ban on certain contractual provisions. Changes have been made to some of the terms, and there are concerns about one particular change that allows Ballad to object to certificate of need requests by other vendors seeking to enter the market. The FTC announced in 2019 that it would study the effects of 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 reports, a review of regulatory fees, a ban on certain contracting practices, commitments to quality of care and population health, and maintaining St. Mary’s as a general hospital for independent acute care for at least seven years. The COPA is due to expire in 2024. The FTC has announced that it will also study the effects of this COPA on price, quality, access and innovation.
- Hendrick Health System / Shannon Health System (Texas – 2020). Both Hendrick Health System and Shannon Health System have received COPA approval for their respective mergers. COPA conditions include regulatory rate review and reporting requirements. The FTC said it will continue to monitor the effects of COPAs.
The paper concludes that COPAs rarely work as promised. In particular, because COPAs exacerbate the widespread problem of hospital consolidation, they reduce wage growth for hospital employees, compliance with COPA terms is difficult to monitor, they are likely to evade regulation, and they are temporary. .
The vote to release the staff report was 5-0, underscoring the decades-long consensus among federal antitrust authorities that consolidating healthcare providers is an important priority. Much of the FTC’s news over the past year has focused on divisions among commissioners over policy priorities, but health care remains an area of agreement, especially when it comes to mergers. hospitals.