States are not equipped to oversee hospital mergers under certificate of public advantage laws, a new paper from the Federal Trade Commission concluded.
Some states have allowed hospitals to merge via COPAs, shielding the merging parties from federal antitrust scrutiny in exchange for prolonged state oversight. While hospital executives and state officials claim that mergers under COPAs will lead to lower costs and better outcomes, some transactions have produced the opposite results, the FTC said Monday in an analysis of hospital deals.
Economists have long warned of the dangers of allowing states to regulate hospital mergers via COPAs, which should be eliminated, they say.
“I can envision that this FTC study will convince stakeholders at the state level, such as employers, consumer organizations and health insurers, that COPAs can have a meaningful negative impact on prices, costs and quality in health care and perhaps motivate them to work harder in opposing COPAs in their state,” said Paul Ginsburg, health policy professor at the University of Southern California and senior fellow at USC's Schaeffer Center for Health Policy and Economics.
The FTC released its analysis on COPAs and hospital mergers as the agency reworks its hospital merger guidelines. Commissioners hope stricter guidelines will prevent anticompetitive transactions.
Nine states have approved hospital mergers through COPAs: North Carolina, South Carolina, Montana, Maine, Minnesota and, most recently, West Virginia, Tennessee, Virginia and Texas. While North Carolina, Montana and Minnesota have repealed their COPA laws, those states also eliminated state oversight of providers that were allowed to combine under those laws, the FTC said.
Asheville-based Mission Health lobbied North Carolina to repeal its COPA in 2015, paving the way for the hospital chain HCA Healthcare to acquire the not-for-profit system in 2019. The COPA was originally approved, in part, to prevent out-of-state for-profit healthcare systems from acquiring the local hospitals, the FTC noted.
The FTC cited two studies that found Mission Health increased its prices by at least 20% more than peer hospitals during the COPA period. Prices jumped by 38% after the COPA was repealed in 2016, according to previous research. Mission Health did not immediately provide a statement about its inclusion in the FTC paper.
“Almost all of the COPAs established prior to 2015 have expired or were repealed, leaving the affected communities with unregulated hospital monopolists, higher prices and likely reduced quality,” Chris Garmon, a professor at University of Missouri-Kansas City and former FTC economist, said in the paper published Monday.
Mountain States Health Alliance and Wellmont Health System merged in 2018 under Tennessee and Virginia COPAs to form Ballad Health. State authorities permitted the merger under certain conditions, including a price increase cap, quality of care commitments, a ban on some anti-competitive contract provisions and a promise to pass on merger cost savings to the community.
But some of those conditions have been phased out, including the prohibition on Ballad opposing competitors’ certificate of need applications, the FTC said. A spokesperson for Ballad said the health system agrees COPAs should not be widely used but its own COPA has helped it serve communities.
“This FTC paper is long overdue,” said Wally Hankwitz, an industry consultant.
While the paper provides solid evidence that COPAs can raise prices, lower the quality of care and create access problems, the FTC can’t do much more than recommend that states stop using them, said Richard Scheffler, a health economist and policy professor at the University of California, Berkeley.
The FTC said in a statement that it hopes to talk with state lawmakers and policymakers about the realities of COPAs and the resulting harms before these laws are passed.
Federal regulators also are monitoring any post-merger changes to employee wages. Nurse and pharmacy worker wages dropped 6.8% in the four years after a merger that left hospital markets highly concentrated, a 2019 working paper found.