Mountain States, Wellmont skirt federal regulation and score state merger approval

The Virginia state health commissioner recently approved the proposed merger between Mountain States Health Alliance and Wellmont Health System despite the Federal Trade Commission's opposition.

Both Tennessee and Virginia approved the organizations' certificate of public advantage, or COPA, which essentially allows them to skirt challenges from federal regulators in favor of 10 years of state oversight while the companies integrate under Ballad Health. COPAs are used to demonstrate that a merger's public benefit outweighs potential anticompetitive consequences.

"The state will typically consider anticompetitive concerns, but such factors may be outweighed by public benefits such as increased quality of care and cost efficiencies," said Beth Vessel, who specializes in antitrust issues at the law firm Waller Lansden Dortch & Davis.

Mountain States and Wellmont argue that their combined 21 hospitals could better serve one of the sickest and poorest regions in the country, as outlined in their initial letter of intent issued in September 2015.

Executives said they would use more than $200 million of the savings from more efficient operations to combat public health issues like obesity as well as provide mental health counseling, addiction treatment, managed-care services and pediatric specialty centers.

Competition between the neighboring systems has failed to benefit patients in southwest Virginia who have limited access to services that yield lower margins, and thus, there's less incentive for the providers to expand those service lines, the organizations said. Without the opportunity to join forces, they would be forced to sell their assets to a larger system that would likely close hospitals, they said.

Yet, healthcare economists have long warned that fewer competitors often lead to higher prices when large health systems can exert their market dominance in negotiating better rates with payers, among other tactics. They have also debated the need for certificate of public advantage.

The FTC said that the organizations "fail to provide sufficient additional information or analysis to demonstrate by clear and convincing evidence that the purported benefits of this merger would outweigh the serious competitive harm that would likely result from creating a near-monopoly." Federal regulators generally oppose the use of certificate of public advantage statutes, often questioning whether ongoing state supervision will be sufficient, experts said.

"There is often a difference of viewpoints, and part of it is that the FTC has a particularly narrow focus on competition while a state commission has broader mandate," said Alston & Bird attorney Leslie Overton, a former deputy assistant attorney general at the U.S. Justice Department's antitrust division.

The FTC said Wednesday that it is seeking more research and public comment on certificates of public advantage. Some of the ongoing state supervision requirements often include limiting managed-care pricing; prohibiting systems from preventing suppliers contracting with competitors or opposing certificates of need for potential competitors; imposing aggregate and annual spending commitments tied to specific services; and requiring measurable population health improvement goals, among other provisions.

While there has been an increased focus on the possibility of using these types of state statutes to avoid federal antitrust challenges, they are used rarely because of the lengthy application process and tedious state reporting requirements, Vessel said.

The Tennessee Department of Health and attorney general's office created an index outlining benchmarks linked to improving key health outcomes in the region, including recommendations from an advisory group. There are fines of up to $1 million if the combined system doesn't satisfy certain criteria in the COPA, Vessel said.

"There are real teeth in terms of enforcement," she said.