FTC warns states against laws permitting hospital mergers under special conditions

The Federal Trade Commission (FTC) is warning states away from certificates of public advantage (COPAs) legislation, cautioning that hospital mergers permitted under these laws still bring many of the detrimental effects of consolidation they purport to prevent.

State-level COPA laws allow hospitals to avoid federal antitrust enforcement should they demonstrate that a merger’s benefits outweigh the negative impacts of reduced market competition, such as higher prices and reduced quality of care.

The laws often come with specific terms such as price controls or mechanisms to pass along cost savings and efficiencies and are supervised by state departments of health and attorneys' general offices.

In a policy paper released Monday (PDF) by the FTC, the agency said it has seen a “resurgence” of the laws in recent years, including those passed by state legislatures “with the intent of exempting specific proposed hospital mergers from anticipated antitrust challenges.”

The agency’s new policy paper cites four recent “case study” hospital mergers allowed under COPA legislation that resulted in “substantial” price increases and reduced care quality at hospitals regardless of the protections included in those laws.

“Despite hospital claims that COPAs will result in lower costs and improved population health outcomes, we are not aware of any proven benefits of COPAs,” FTC Director of Policy Planning Elizabeth Wilkins said in a statement. “We urge state lawmakers to consult local health insurers, employers and workers regarding the potential impact of COPA legislation.”

Case studies included in the FTC’s policy paper included the 1998 merger of Memorial Mission Hospital and St. Joseph’s Hospital (now Mission Health System) in North Carolina, the 1996 merger of Columbus Hospital and Montana Deaconess Medical Center (now Benefis Health System) in Montana, the 1997 merger of Baptist Healthcare System and Richland Memorial Hospital (now Palmetto Health System) in South Carolina and MaineHealth’s 2009 acquisition of Southern Maine Medical Center.

In each of these examples, COPA laws did “not prevent hospitals from exploiting market power” via increased rates and other practices detrimental to the market, according to studies cited in the FTC’s policy paper.

In each state but Maine, the legislation was repealed after the merger so other hospitals in the state could not pursue similar mergers—a move that also removed states' regulatory oversight of the merged systems and made federal antitrust enforcement “no longer practical” due to how much time had passed, the FTC wrote.

The FTC said it is aware of nine states that approved hospital mergers under COPA legislation since the 1990s.

This includes three more recent mergers under COPA approvals: Virginia and Tennessee’s Mountain States Health Alliance and Wellmont Health System, which merged to form Ballad Health System in 2018; and Texas’ Hendrick Health System and Shannon Health System, each of which received approvals for mergers of hospitals in their counties.

For the former, FTC said it has heard early concerns on pricing, access and payer negotiations regarding the Ballad Health merger from an independent physician group and health insurer.

The agency wrote that it is still “too early to assess the price and quality effects” of the Texas COPAs approvals but that it “will continue to monitor developments.”

The FTC accompanied the COPA case studies with research data countering hospitals’ common bullet points in favor of COPA-supervised consolidation, including greater local access to services, more jobs, improved population health efforts and “wasteful duplication” cost savings.

The agency contended that these claims routinely don’t come to pass, do not require consolidation to achieve or could be better realized through normal market competition. It also told states that hospitals should not use concerns of future financial challenges as justification for a COPA-approved merger, as the agency would be “unlikely” to contest deals in which a hospital is failing financially and can only remain viable via consolidation.  

“For these reasons, FTC staff urges state lawmakers to avoid using COPAs to shield otherwise anti-competitive hospital mergers,” the agency wrote in the paper.

The FTC’s position comes five years after the regulator launched a project exploring the impact of COPAs through research on past agreements and public workshops with stakeholders. Those efforts informed the new policy paper, which was unanimously approved by the FTC’s five commissioners for release.

The paper and its warning to state lawmakers are the latest in a string of actions the federal regulator has taken in opposition to hospital industry consolidation, most recently a pair of blocked hospital deals in New Jersey and Utah.

The hospital industry, meanwhile, has pushed back against increased scrutiny and pointed to highly concentrated payer markets as the true culprit of high prices.