West Virginia lawmakers are pushing a bill (PDF) that would protect hospital mergers from state and federal antitrust scrutiny—a move that follows the Federal Trade Commission's announcement that it's challenging a proposed deal between two hospitals in the state.
Questions remain, however, about whether the bill could withstand a court challenge should it pass into law.
The bill would exempt actions of the West Virginia Health Care Authority, as well as actions of “hospitals and health care providers under the authority's jurisdiction” from state and federal antitrust law. A state Senate committee approved the bill earlier this week.
The bill comes just months after the FTC said in November that it is challenging Cabell Huntington (W.Va.) Hospital's plan to acquire nearby rival St. Mary's Medical Center.
The FTC alleges (PDF) that the merger of the two hospitals—which sit three miles apart in Huntington—would create a near monopoly over general acute-care, inpatient hospital services and outpatient surgical services in and around Huntington. The deal would lead to higher healthcare costs and reduce the hospitals' incentives to improve quality of care, according to the FTC.
The two hospitals' leaders have said they believe the FTC challenge “misreads the highly competitive landscape” across their three-state market of Kentucky, Ohio and West Virginia. They have said they believe the acquisition would benefit the community and its patients.
Sponsors of the bill that would make that deal and others immune to antitrust action did not respond to repeated requests for comment. But one of the sponsors, state Sen. Bob Plymale, (D-Cabell), told the Huntington Herald-Dispatch that the merger is a local issue that should be handled in West Virginia, not Washington, D.C.
“We better understand access, service and regulation that affect the unique challenges of our citizens,” Plymale said.
The bill's critics, however, worry that the merger would raise healthcare costs.
Timothy Duke, president and CEO of Steel of West Virginia, said higher healthcare costs could put his business at risk. The steel producer is self-insured and employs about 550 workers.
“This is blatant special-interest politics that tries to relieve Cabell Huntington from an antitrust review,” Duke said. “If Cabell believes the acquisition is not a monopoly, let them prove that in the April trial.”
The administrative trial at the FTC over the merger is scheduled to begin April 5.
Questions also remain about whether the bill, if passed into law, would pass muster if challenged in court.
“There's a serious question about what kind of immunity they can confer,” said Tim Greaney, co-director of the Center for Health Law Studies at St. Louis University School of Law, and a former assistant chief of healthcare antitrust enforcement at the U.S. Department of Justice. "The hurdle they have to overcome to immunize antitrust applicability to mergers is a pretty substantial one.”
States seeking to immunize healthcare deals from federal antitrust review must prove two things. First, they must show that the state has a clearly articulated and affirmatively expressed policy of displacing competition with regulation, said Richard Feinstein, a partner at Boies, Schiller & Flexner, and a former director of the FTC's Bureau of Competition.
In 2013, the U.S. Supreme Court ruled against Phoebe Putney Health System (PDF) in Georgia over its acquisition of Palmyra Medical Center in Albany, Ga., because of that requirement. In that unanimous ruling, the justices wrote that the state of Georgia had not “clearly articulated and affirmatively expressed a policy to allow hospital authorities to make acquisitions that substantially lessen competition.”
However, Feinstein said if the West Virginia bill were to become law, it might satisfy that requirement.
But the second requirement for immunity from antitrust laws might be tougher to meet, Greaney said. Under that requirement, merging hospitals also must show that their conduct has been actively supervised by the state in order to get immunity from antitrust laws.
Last year, the U.S. Supreme Court decided in North Carolina State Board of Dental Examiners v. Federal Trade Commission (PDF) that state licensing boards made up of active members of the professions they regulate are not shielded from antitrust laws unless they are actively supervised by the state.
And that active supervision requires more than just a rubber stamp.
In the majority opinion, Justice Anthony Kennedy wrote that active supervision requires the supervisor to review the substance of an anticompetitive decision; the supervisor must have the power to veto or change the board's decision; and the supervisor may not itself be an active market participant.
It's not totally clear how the North Carolina decision might apply to mergers seeking protection from antitrust scrutiny, but it does signal that the Supreme Court is going to have some “pretty stringent” requirements relative to active supervision, Greaney said.
“The state action doctrine and Supreme Court law say if you're going to supplant competition, you have to do it in a serious and rigorous way,” Greaney said. “You have to state in your law that's what you're doing, and interpose the state as the regulator, not just put a gloss over the activity and give the private actors the power to control their market.”
Feinstein said a number of states experimented with laws in the 1990s meant to shield hospitals from antitrust action, with the idea of helping to facilitate cooperation among competing healthcare facilities. He doesn't remember, however, that many hospitals actually sought protection under those laws in the past.
