Federal judge sides with LCMC Health, Louisiana over FTC's challenge to 3-hospital purchase

A U.S. district judge sided with LCMC Health and Louisiana's attorneys over the Federal Trade Commission (FTC) in a lawsuit pitting federal hospital merger regulations and state-issued exemptions against each other.

The New Orleans-based nonprofit system had purchased three Tulane University hospitals from HCA Healthcare for a reported $150 million. Upon the receipt of a Certificate of Public Advantage (COPA) from the Louisiana Department of Justice, which had conducted its own investigation of the deal, LCMC moved forward with integrating the facilities

The FTC, however, believed that LCMC was still required to submit to a federal review and began to accrue a daily penalty for its work consummating the transaction. (See below.) The two sides subsequently filed complaints contesting the other's position, with the Louisiana DOJ and HCA both coming in on the side of LCMC. 

In an order filed Wednesday in the U.S. District Court of the Eastern District of Louisiana, Judge Lance Africk broadly ruled in favor of the hospitals and the state. His order granted motions for summary judgment from the hospitals and the state, dismissed with prejudice the FTC's claims against the hospitals and denied the FTC's motion for summary judgment against the state's motion. 

"We are pleased to announce that the District Court has recognized the value of our partnership with Tulane University and upheld the State of Louisiana's approval,” LCMC Health CEO Greg Feirn said in a statement. “Earlier this year, LCMC Health and Attorney General Jeff Landry took a strong stance by taking legal action to safeguard this significant collaboration. This partnership underwent a thorough review and approval from the Louisiana [DOJ], which has been validated by the court’s decision.”

The dispute was noteworthy as a legal test of COPAs—exemptions from antitrust requirements that some states grant to merging hospitals. The FTC has broadly urged states away from issuing COPAs under the argument that the price and access conditions health systems agree to in exchange for the exemption are often broken in subsequent years.

Africk concluded that the transaction was exempt from the federal antitrust laws and was not required to comply with Section 7A of the Clayton Antitrust Act’s requirements.

"The Court finds no reason to subject a merger exempt from Section 7 to a waiting period and filing requirements designed to allow the FTC to determine whether that merger may violate Section 7," the judge wrote. "As discussed throughout, there is no genuine dispute of material fact in this case, and the Hospitals are entitled to judgment as a matter of law."

Africk wrote in the order that "the court appreciates that this holding may make enforcement more difficult for the FTC in the narrow context of transactions that close pursuant to state COPAs." 

However, transacting parties are "already incentivized" to follow California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., a 1980 Supreme Court precedent that permits a potentially anticompetitive action so long as it has state approval and supervision, Africk wrote. 

Diane Hazel, a former FTC lawyer who is now a partner working in Foley & Lardner's Antitrust Practice, described the decision as "a significant ruling" for hospital transactions in states with COPA laws.

"For hospital transactions, preparing [a Hart-Scott-Rodino (HSR)] filing and abiding by the mandatory waiting period under the HSR Act is a substantial burden," she told Fierce Healthcare. "Now, for hospital mergers that secure a state COPA meeting the requisite requirements, they likely can avoid that burden. As the FTC and DOJ recently announced a proposed overhaul of the HSR reporting process, being exempted from the HSR requirements is no small thing."

Hazel said that hospital parties considering such a deal should still consult with a legal counsel "as part of the Court's ruling was based on the specific COPA at issue in Louisiana." She also noted that another federal district court could land at a different conclusion. 

"But, because of the significance of this decision and the broader ramifications for the FTC’s merger review, we should anticipate that the FTC will likely appeal to the Fifth Circuit," she said. "This may not be the end of story."

Fierce Healthcare has reached out to the FTC for comment on the ruling and information on whether the regulator plans additional legal action.

Editor's note: This story has been updated with commentary from a legal expert.