Alex Kacik: Hello, and welcome to Modern Healthcare's Beyond the Byline where reporters add context to their stories to help you better understand the news and how it's reported. My name is Alex Kacik. I'm the hospital operations reporter for Modern Healthcare. Today, we are lucky to have Tara Bannow our finance reporter. Thanks for joining us there. Hey, so your recent story looked into the sale of three Texas hospitals. The two systems looking to buy the hospitals would have the only acute care hospitals in their respective cities and the federal trade commission warned that the deals could lead to higher cost, a lower quality and access, but there's not much else they can do to stop it. Why is that?
Tara Bannow: Yeah, it's because the Texas lawmakers last year passed, what's called a certificate of public advantage law. COPA laws basically provide a framework by which States can approve and regulate hospital mergers with, you know, the understanding that these are regulated monopolies. The Supreme Court has said that States have the option to offer this immunity so long as they have clearly articulated policy. So a law and active supervision of the deals. So basically it's the state's way of saying, we believe the pros outweigh the cons and we will regulate the cons so that, you know, prices don't go up. People don't lose access and quality. Doesn't take a hit as a result of this because you know, as you and I will know, those are the natural effects of a hospital monopoly. So even though the FTC in this case has basically flat out, said, you know, this situation is even more of an, of a monopoly than what we've sued over in the past. It, it really doesn't have ground to Sue because the state has granted this code.
Alex Kacik: So the state authorities would essentially take the place of federal regulators here. And then they assess whether the benefits of the merger as purported by the executives, you know, outweigh the potential antique competitive consequences. Right. That's exactly right. So I saw from your reporting, you know, you mentioned that there is a list of conditions that the state regulators put on this, these potential sales, one of which you have to approve rate changes for hospital services, and they'll have to regularly report readmission rates and other quality metrics to seemingly hold them accountable. But you found what seems to be a pretty big loophole in the state COPA, Texas hospitals can simply terminate their COPA by giving regulators 30 days notice would that effectively free them up from these regulatory guidelines?
Tara Bannow: You know what that is exactly what it sounds like is the case here. And that was something that was really alarming to the experts that I talked to you about this. They said that this is really an opt-out provision and it kind of sounds like a sweetheart deal for the hospitals involved because if the regulation gets to be too cumbersome, they can basically just say, no thanks. We don't want to do this anymore. We don't want to abide by these rules. It's not language that I've seen in other COPA laws in attorney for the hospitals, I'll just say said that, you know, this termination clause, isn't the bogeyman everyone's making it out to be. But the reality of the situation is that it's virtually impossible to, as they say, unscramble, the eggs, once a merger is complete. So, I mean, after you've combined the service lines, consolidated insurer, contracts, reorganized all the staffing and positions and you can't just undo all that stuff.
So I, I did ask the Texas health and human services commission, which is the, the agency that regulates the COPA. I asked, you know, what does this termination clause mean in practice and the spokesperson? You know, pretty much just read that section of the statute. Back to me, it was a hospital resulting from a merger agreement, may voluntarily terminate its COPA by giving the commission at least 30 days notice before the date of termination, she did add that the commission can make adjustments as appropriate to ensure the merger benefits the public, but it's unclear what that means in practice. So this point, I think is a very big deal and it makes me wonder our future COPA law is going to have this, this opt-out clause, you know, which I mean kind of renders them void.
Alex Kacik: One Brookings economist told me that, you know, when they implement these types of laws, there just isn't the staffing in place for these States to essentially take the role of these federal regulators. So if you could get into a bit of why some, you know, economists and, and federal regulators are generally wary of these deals.
Tara Bannow: Yeah. I mean, it's not a secret that the FTC has been very outspoken about its opposition to COPAS, especially their analysis on this particular set of deals in Texas. So actually the FTC is, is undertaking right now, a pretty sweeping study on the effects of COPAS. They're requesting a whole bunch of information from the current hospitals that have COPAS from insurers. So I think the FTC would tell you, as your other sources did that States simply can not do the jobs of federal regulators. They don't have the, the level of sophistication and the resources from the state's perspective. You often hear regulators and lawmakers argue that they know what their state needs better than the feds. Do they understand the specific market dynamics in the regions that these hospitals serve? And they say that they know better than anyone, the, the horrible things that would happen. If these mergers weren't allowed to happen,
Alex Kacik: Do healthcare organizations in their respective States, when these COPA laws, you know, are proposed, do they play a role in like getting the law passed?
Tara Bannow: Oh yeah. Hospitals. I mean, they tend to be some of the biggest employers in their regions. I mean, especially in these cities in Texas, they're just really politically powerful. So if they want to do a deal that they think might get blocked by the feds, they might go to their state lawmakers who they might have relationships with already, you know, write them a check and be like, Hey bud, you know, can I get a COPA? And in this particular case, both the CEOs of Hendrick health system and Shannon medical center, the two providers that are buying hospitals from community health systems, they donated money to the little lawmaker who carried the bill. Both CEO's spoke in support of the bill at a hearing, a CHS representative. That's the company selling the hospitals and a pair of Texas hospital trade groups had both been scheduled to testify in support of the bill. So it, it sure seems to me like there was a lot of political pressure to get this thing passed
Alex Kacik: Texas regulators. They greenlit the sales in October. What was notable about their reasoning, why they decided to give the okay,
Tara Bannow: Both deals. Cause this was two separate hospitals, sales. The commission kind of broke down their rationale by each specific code that has to be met to pass this. And they said, you know, well, the FTC said this, the state ag said this, and we say this in almost every situation the commission said effectively, the pros outweigh the cons. And it was interesting because in most of these, it was really just the commission taking the hospitals, his word for it. You know, they said, well, the hospital says that they'll maintain the same level of quality. They said that accessibility will improve. They said, they'll cut costs. They said, they'll create jobs. It does appear that the hospitals are going to have to put together some pretty involved quarterly reports. You know, they have to show evidence that quality has improved patient costs, but volumes, readmissions examinations of how patient services were optimized.
I mean, that's the kind of language in there. You have to show effects on patient, wait times charity care, service delivery expansion. The part that was not so specific though, was where it talked about the rate review process. And I think this is really important because in that part, the commission is simply wrote that it's going to establish a rate review process and require approval before any rate changes. That's interesting because other COPAS have had very specific language. Like, you know, you can't raise inpatient or outpatient rates beyond X amount, and then there's some complicated algorithm for measuring it. But this one's pretty big. I would argue that's important because as we've seen, there's a lot of research that hospital mergers give providers more leverage to raise their prices. So it'll be interesting to watch this later and see, you know, what the rate review process ultimately looks like.
Alex Kacik: Well, and to that point, state regulators mentioned this was relatively vague. So this is how we interpret it. But once you start to get interpreting things, I imagine things can get a little bit murkier.
Tara Bannow: Yeah. I mean, the FTC pointed out in their analysis, you know, Texas, your, your state law, and this is pretty vague. And the commission's like, yeah, but you just got to trust us.
Alex Kacik: So I'd be remiss if I didn't bring up your series on Ballad Health, if you hadn't read that, please do. I think it offers some really important context to not only the certificate of public advantage process, but generally like mergers and acquisitions in healthcare. But you know, what, what did you learn from, from that transaction that might be illuminating in how this Texas deal goes through?
Tara Bannow: I think that was a fascinating case because it really illustrates a lot of what can happen. You know, as far as the, the erosion of public trust in, in your, in your, you as a healthcare provider. I mean, this, this was a really politically connected set of, of, you know, hospital officials. They successfully pushed to get the law passed, get the deal closed. And that definitely created a lot of mistrust among community members. I went there last year, talked to a lot of locals. People told me their bills had gone up. They felt like they weren't as safe anymore. Ballad has done some really aggressive consolidation since the merger, they're consolidating some NICU services, some trauma services, and it's been done in a way that people there feel like is not safe. And, you know, not to mention valid has filed 5,700 lawsuits over unpaid bills in its first fiscal year as a merged system, people were holding public hearings. There were protesters camped in front of the hospital. There was a petition to stop the service plan consolidations. So just a ton of opposition. It seems like there's really been this communication breakdown and it's bread mistrust. And a lot of misinformation, what really has been learned from this Copa is that you've really got, explain your rationale really well. And you've really ought to be responsive to the community and not dismiss the, the real concerns that people, well,
Alex Kacik: You mentioned the lengthy reporting requirements of these COPAS, which from what I understand can deter some, some systems from pursuing this route. But I'm curious, you know, as you factor in the COVID-19 pandemic care, could that potentially push more hospitals to try to get COPAS passed in their own States so they can pursue deals that federal regulators would otherwise block?
Tara Bannow: It's a really good question. I mean, like obviously you and I have seen a lot of reports, a lot of predictions that there's going to be more hospitals that want to merge, you know, get more bargaining power and stability. So I, I mean, it, it's not like hope as are easy for anyone involved though. I mean, I don't think we'd ever be in a situation where, you know, we're just seeing COPAS issued left and right. It's not like hospitals want to necessarily be under all this public scrutiny and it's not like state regulators want to spend all their time regulating hospitals. So I dunno, it's tough to say, I would say the biggest problem with COPAS is not so much while they're in place, but when they're lifted, because you've created a regulated monopoly, but when they're gone, you've got an unregulated monopoly and look at what happened with mission health, former formerly not for profit system in Asheville, North Carolina, for-profit HCA announced that they wanted to buy mission shortly after that Copa was lifted. And so since that deal, there's been a lot of patients that are been complaining about higher bills complaining about clinics closing. So I guess when you think about the termination clause in Texas as Coppola, it kind of makes me wonder whether we'll see more of that problem.
Alex Kacik: Well, Tara, I heard a Slack message. So I'm going to let you get back to it. It's been an absolute pleasure to break this down with you. I think it was really helpful. So thank you so much for taking the time to talk and we'll catch you on another time. Thanks Alex. Thanks for listening to modern. Healthcare's beyond the byline. If you want to read more of Tara's work, please follow us on social media at modern healthcare and tune into future episodes that come out twice a month on wherever you stream podcasts.