Community Health Systems wants to sell two hospitals under a new Texas law that avoids federal antitrust scrutiny.
The Franklin, Tenn.-based hospital chain has proposed two separate hospital sales that, if approved, would make the buyers the only acute-care hospital operators in their respective cities. It wants to do so using a type of law that helps states dodge the Federal Trade Commission's authority to challenge deals it deems anticompetitive.
Investor-owned CHS announced Monday it plans to sell 231-bed Abilene Regional Medical Center in Abilene, Texas to Hendrick Health System, which currently runs the only other acute-care hospital in Abilene. CHS announced on April 20 plans to sell 171-bed San Angelo Community Medical Center in San Angelo, Texas to Shannon Health System, which runs the only other acute-care hospital in San Angelo. CHS did not respond to a request for comment.
In order for the deals to close, CHS and the proposed buyers will need approval under the state's new Certificate of Public Advantage framework, the product of a new law that took effect in September. The Texas Health and Human Services Commission will review both proposed transactions, which CHS says it expects to close by the end of the third quarter. As of Tuesday, the HHSC said it had only received the San Angelo application. The Texas law gives HHSC 120 days to grant or deny applications.
Hospitals have called upon their states' COPA framework to complete and regulate mergers that the FTC would otherwise have sought to block, considering them monopolies. Unsurprisingly, the FTC is not a fan of the maneuvers, and publicly opposed a COPA-enabled merger in Tennessee and Virginia and another in West Virginia.
The CEOs of Hendrick Health System and Shannon Health System both donated money last year to Rep. Drew Darby, the Texas House member who carried the bill that became Texas' COPA law, House Bill 3301, data from the Texas Ethics Commission show. Both CEOs also spoke in support of the measure at a hearing. A representative from CHS was scheduled to testify in support of the measure but did not ultimately do so.
The political pressure to pass COPA laws typically comes from the health systems that want to merge and stave off the FTC's antitrust review, Erin Fuse Brown, an associate professor in Georgia State University's College of Law, wrote in an email.
"I wouldn't be surprised if the COPA application follows quickly on the heels of the passage of the law," she said.
Representatives from CHRISTUS Health, the Texas Hospital Association and the Texas Organization of Rural and Community Hospitals were also scheduled to speak in favor of the bill. A number of San Angelo physicians also donated to Darby last year. Shannon Health System surgeon Dr. John Cargile gave $2,500, for example.
The Texas COPA law applies to hospitals located in counties with at least two hospitals and populations of less than 100,000 that are not adjacent to counties with populations of 250,000 or more. It also applies to counties with populations between 100,000 and 150,000 that are not adjacent to counties with populations of 100,000 or more.
As part of the Abilene deal, CHS also plans to sell Hendrick Health System its 188-bed Brownwood Regional Medical Center in Brownwood. Hendrick would work with the Brownwood County Hospital Authority to secure the facility's long-term lease and operations.
Representatives with both Hendrick and Shannon health systems declined to discuss the deals. In a news release, Hendrick said acquiring the two CHS hospitals would better position the system to navigate the healthcare industry's changing landscape. In particular, it would create emergency and operating room capacity and ensure patients don't need to travel for specialized care, the release said.
"Aligning with Hendrick Health System creates a more comprehensive regional network of hospitals for our region," Mike Murphy, CEO of Abilene Regional Medical Center, said in a statement. "Our hospitals have a shared commitment to serving patients with compassionate, quality care, and we look forward to joining together."
Public information on the Texas COPA law suggests it was created at least in part to benefit CHS in its two proposed deals, Bill Horton, a partner with Jones Walker and co-chair of its healthcare industry team, wrote in an email.
However, the fact that the THA and TORCH were scheduled to testify in favor also suggests broader support from the Texas hospital community, "and that it wasn't something that anyone was trying to speak through."
"Presumably, the thought process here is that the merger of the two hospitals in a two-hospital town might draw fire from the FTC, but having state COPA legislation in place would insulate the transaction from federal review," Horton said.