麻豆传媒

With healthcare consolidation slated to continue at a fast pace -- in part due to greater financial challenges from the pandemic -- hospitals looking to merge aren't entirely beholden to a green light from the Federal Trade Commission. At least that's the case for now.

In recent years -- in a throwback to the 1990s -- a quartet of states have turned to certificates of public advantage, or COPAs, to complete two major health system mergers and two hospital sales. Though COPAs vary from state-to-state, the FTC defines them generally as regulatory regimes adopted by state governments to displace competition among healthcare providers and immunize mergers and other deals from antitrust scrutiny.

In 2016, West Virginia passed a type of COPA law that paved the way for Cabell Huntington Hospital to of St. Mary's Medical Center in 2018. That same year, Tennessee and Virginia also passed legislation to use COPAs that allowed Mountain States Health Alliance and Wellmont Health System to , creating a system spanning the largely rural area near the states' common border.

The FTC dropped challenges to both deals because of the COPAs, but it took notice.

In 2019, the agency announced it had to the resulting health systems and five insurers to provide information that would allow it to study the effects of COPAs on the price and quality of healthcare services as well as on access to care and employee wages. And just last year, the agency objected -- but watched again -- as Texas approved Community Health Systems' divestiture of hospitals in Abilene and San Angelo via COPA law.

"There were a few of these in the 90s ... but after that things went pretty quiet for a while," Alexis Gilman, a partner in Crowell & Moring's antitrust and competition group in the firm's Washington, D.C., office, told 麻豆传媒. "Then they came back in 2016."

Increasing financial pressure facing healthcare providers is among a host of reasons states have once again turned to COPAs to get deals done, said Gilman, who served as an assistant director at the FTC prior to joining Crowell & Moring in 2017. Gilman has written about the resurgence of COPAs for the American Health Law Association.

In the last 15 years, the FTC has been very successful in blocking hospital and other healthcare provider mergers when the agency believes the transactions are anticompetitive, Gilman said. At the same time, healthcare providers -- especially community and independent hospitals -- are facing a difficult time keeping up with the needs of their communities, reinvesting in their care system, attracting physicians and nurses, and coming up with the cost of capital to make investments.

Many of these hospitals want to merge, Gilman said. And where they often find a merger partner they deem attractive is in their same geographic area because they believe they can achieve efficiencies, scale, and purchasing power, and may have already been collaborating in some way with that potential partner.

But the FTC will scrutinize these deals, and many healthcare providers believe the FTC takes a very narrow view of competition and the efficiencies credited, he said.

So, the decision in some cases has been to put transactions in the states' hands because that oversight is more local to where the deals are taking place, Gilman said. "The feeling is, let's have the states ... decide what's best for the community, how healthcare should be delivered in the state."

COPAs include active state supervision, and typically specify strict limits on price increases and requirements for investments in local healthcare markets, he said.

One argument for them has been that certain hospitals may have been competing for years, but their region or state continues to have poor health outcomes, Gilman said. The "competitive marketplace isn't working in all places."

What Feds Want to Know

"Basically," Gilman told 麻豆传媒, the Texas hospital sales mark "the third time in five years hospital mergers are getting consummated under these COPAs [with] FTC objections."

The FTC can point to general economic evidence that consolidation can lead to higher prices, Gilman said. But the agency hasn't had hard data as to whether COPAs have been successful in improving quality of care and access to care.

The FTC's study -- which is ongoing as of this week -- could change that.

The agency has said that it's seeking aggregated patient billing and discharge data from Ballad Health and Cabell Huntington Hospital as well as employee wage data and other information relevant for analyzing the health systems' prices, quality, access, and innovation.

It intends to collect information "over the next several years and report publicly the findings from the study, in a manner that is consistent with the FTC's confidentiality rules," spokeswoman Betsy Lordan reiterated this week in a statement provided to 麻豆传媒.

"As with any request for information, FTC staff expects to work collaboratively with special order recipients to minimize their burdens while preserving the commission's need to obtain information for the study," Lordan added.

The FTC has said that the goal of the study is to improve its knowledge of COPAs and inform future advocacy and enforcement. It has also said the study is expected to be a resource for states and stakeholders that may be considering using COPAs.

Arguments Against COPAs

Even before the data come in, there are arguments against COPAs.

One point of contention is that federal antitrust law already allows mergers among healthcare providers that are pro-competitive and considers the efficiency of transactions, Gilman said. COPAs are immunizing transactions otherwise, and once they're approved, the remaining option is to try to constrain the harm of eliminating competition that took place through restructuring a local market.

Another argument is that the FTC doesn't serve as a regulator -- it's an antitrust enforcer -- and that states shouldn't be in the business of supervising conduct either, he said.

The concern is also raised that COPAs can have terms that expire, Gilman said. If the limit on price increases is set for a 10-year term, what happens when it goes away? he questioned. Why wouldn't the organization take advantage of its market share to raise prices when able?

Another question, Gilman said, is what may happen if a healthcare provider doesn't meet its COPA obligations or if an unforeseen crisis like the pandemic renders it unable to do so? "It's going to be difficult to unwind that merger and force investments to be made," he said.

In the FTC's -- made to the Texas Health and Human Services Commission last year -- it wrote that, "Although many states have enacted COPA legislation since the 1990s, very few hospital mergers have been approved pursuant to such legislation."

The FTC noted in the submission that it is aware of eight states that purported to grant antitrust immunity to merging hospitals via COPAs: North Carolina, South Carolina, Montana, Maine, Minnesota, and most recently, West Virginia, Tennessee, and Virginia. North Carolina, Montana, and Minnesota have since repealed legislation so hospitals there are no longer allowed to obtain COPAs.

"The practical effect of these legislative changes, however, was that the merged healthcare systems that had already received COPAs were allowed to exercise their monopoly market power unconstrained by state regulatory oversight or antitrust enforcement," the FTC wrote. While the results of prior studies vary, the agency wrote, "one study of several COPAs concluded that 'the removal of COPA regulation can lead to higher prices and reduced quality due to unconstrained provider market power.'"

The agency added in its submission that it has learned, anecdotally, that COPAs can be difficult to implement and monitor.

"Over time, regulatory fatigue and staff turnover at the agencies responsible for COPA oversight can lead to less vigorous supervision," the FTC wrote. "Furthermore, the hospitals subject to COPAs often lobby for the repeal of the COPA oversight or for the relaxation of COPA conditions, citing the costs and difficulties of compliance."

However, there's no doubt some states and hospitals, very recently, have been keen on COPAs.

COPA Hospitals and States

In justifying its COPA, that more than 80 rural hospitals in the country have closed, and "we don't want ours to become a part of the statistic." It also says that the communities it serves haven't been as healthy as they could be.

The COPA itself states that the Tennessee Department of Health is authorized to issue such a certificate if the department -- after discussing with the state attorney general -- concludes that applicants have of a reduction in competition. Virginia also reached that conclusion.

Jessica Holstein, assistant director of communications for the West Virginia Department of Health and Human Resources, told 麻豆传媒 in an email that, "In 2016, the Legislature passed a law that made the review of cooperative agreements (which would be considered a COPA) a responsibility of the West Virginia Health Care Authority."

"There has only been one cooperative agreement in West Virginia and that was for Cabell Huntington Hospital's acquisition of St. Mary's Hospital, which was approved on June 22, 2016," Holstein added.

The approving the cooperative agreement says that the expected benefits of the transaction include the enhancement of academic and clinical educational programs, population health, and hospital and hospital-related care such as mental health and substance-use treatment. Other expected benefits include the preservation of hospital facilities in close proximity to the communities they serve, gains in the cost-efficiency of services provided, avoidance of the duplication of hospital resources, and constraints on increases in the total cost of care.

The order says that the cooperative agreement is not likely to have an impact on the ability of health maintenance organizations and other payors to negotiate reasonable payment and service arrangements with hospitals and other healthcare providers. It further says the agreement is not likely to have an impact on competition among healthcare providers, or the quality, availability, and price of healthcare services.

AHA Maintains its Position

The American Hospital Association -- which represents thousands of member hospitals, health systems, and other organizations as well as tens of thousands of individual members -- to the FTC in 2019.

"The AHA expresses no view on the ultimate question of whether COPA laws represent good policy choices," the association wrote in those comments. "The commission has made no secret of its view that COPA laws are a poor policy choice and there is no legitimate aim a COPA law seeks to advance that cannot be accommodated by the antitrust laws. But many merging hospitals have a different view."

"They believe the commission views claims of efficiencies in hospital mergers with unwarranted skepticism and subjects these claims to a high standard of proof that legitimate and genuine efficiencies often fail to meet," the association further wrote. "It should be no surprise, then, that some hospitals turn to the COPA process, where the benefits their mergers will bring to the community are given greater weight."

The association added that, "If the commission were to give more weight to efficiencies in the competitive balance, it is likely the attraction of a COPA (which comes at the price of ongoing regulation) would diminish substantially."

The AHA holds that its position remains the same as its initial comments.

What the Future Holds

Gilman of Crowell & Moring said that it wouldn't surprise him if, given some of the existing challenges, more states turn to COPAs in the near future.

Another factor may be that the FTC's to block a vertical merger -- Illumina's $7.1 billion proposed acquisition of Grail, a maker of an early detection liquid biopsy test that can screen for cancer, is a bit more aggressive than in the past, Gilman said. The companies aren't direct competitors.

Though it's not a quick and easy process, and the FTC has been active in opposing COPAs, recent ones have succeeded, he said.

But much of the future landscape may depend on the FTC's ongoing study.

If the agency were to find empirical evidence that COPAs are not effective, it would enable it to do a better job of challenging the COPA in the first place rather than challenging one on the back end, Gilman said.

As to whether health systems and insurers are getting the requested data to the FTC, spokeswoman Lordan said in a statement that, beyond its initial response on the study, the agency, "cannot comment on the status of any recipient's compliance with the special order."

Comment