FTC: States Should Avoid Agreement Laws on Hospital Mergers

July 13, 2016 - The Federal Trade Commission has made clear its stance on certain state laws governing hospital mergers while at the same time dismissing a complaint against the merger of Cabell Huntington Hospital and St. Mary’s Medical Center. The federal agency announced its decision last week.

The FTC dismissed its administrative complaint following the passage of West Virginia Senate Bill 597 in March, a law allowing cooperative agreements between hospitals regardless of antitrust regulations, and the West Virginia’s Health Care Authority’s decision to approve such an agreement between the hospitals in question.

“This case presents another example of healthcare providers attempting to use state legislation to shield potentially anticompetitive combinations from antitrust enforcement,” wrote the FTC in a statement. “The Commission believes that state cooperative agreement laws such as SB [Senate Bill] 597 are likely to harm communities through higher healthcare prices and lower healthcare quality.”

Under the law, the West Virginia Health Care Authority would be exempt from state and federal antitrust laws. The department maintains the ability to grant cooperative agreements designed to merge healthcare organizations, which are also immunized against anti-trust laws.

The state’s Health Care Authority is tasked with deciding if benefits from the merger would outweigh the potential loss of competition in the area.

In its dismissal of the West Virginia case, the FTC advised states to not implement state cooperative agreement laws that are designed to supersede state or federal antitrust regulations.

“Cooperative agreements that replace antitrust enforcement with state regulatory regimes often protect likely anticompetitive transactions that impose harms far exceeding their benefits,” the FTC wrote. “These laws and any accompanying promises providers may make, no matter how well-intentioned or sophisticated, are unlikely to replicate the manifold benefits of competition.”

The Commission explained that cooperative agreement laws underestimate the value of competition in the healthcare industry, which benefits consumers by lowering prices, increasing care quality, improving access to care, and innovation.

By reducing healthcare competition, the FTC stated that prices may increase and this will be passed on to consumers through higher insurance premiums, deductibles, and copays as well as reduced coverage and lower wages for employees. A lack of completion may also decrease hospital quality and increase morality rates, according to several economic review journals cited by the Commission.

Through the statement, the FTC also worked to debunk claims that antitrust enforcement efforts go against the policy goals of the Affordable Care Act, which aims to foster care coordination among healthcare providers.

While supporters of hospital mergers and acquisitions explain that mergers increase care coordination and lower costs by uniting providers under a common system, the Commission stated that the Affordable Care Act does not void antitrust laws and promote anti-competition mergers. Healthcare providers can improve care coordination on their own or through more appropriate mergers and collaborations.

The statement added that many reported benefits from hospital mergers are not merger-specific and should not be weighed as potential positive outcomes, especially since many could be achieved without the merger.

“Claimed benefits, however, are only cognizable if they are merger-specific,” wrote the FTC. “Many of the purported benefits of hospital mergers – including coordination of patient care, sharing information through electronic medical records, population health management, risk-based contracting, standardizing care, and joint purchasing – can often be achieved through alternative means that do not impair competition.”

Additionally, the FTC questioned how states will enforce cooperative agreement laws in the event that a hospital merger does not generate the level of benefits described in the agreement.

“Because healthcare provider mergers are difficult to unwind, there is no easy remedy if a cooperative agreement fails to deliver its promised benefits,” the statement explained. “In all likelihood, the benefits of competition will be lost, and patients, employers, and communities will suffer the consequences of higher-cost and lower-quality healthcare.”

The Commission concluded by stating that this dismissal “does not necessarily mean that we will do the same in other cases in which a cooperative agreement is sought or approved.”

In response, Cabell Huntington Hospital stated that the dismissal “paves the way for two strong hospital systems to join together to improve the quality of healthcare and expand the scope of services for the region we serve in prudent and cost efficient ways.”

“We are confident that healthcare consumers will be the ultimate beneficiaries of this transaction,” said Kevin N. Fowler, President and CEO of the hospital in a statement. “We are extremely grateful for the tremendous support that we received from the community as well as the recognition by the West Virginia Legislature of the compelling interest of the State in the efficient delivery of healthcare by the passage of the Cooperative Agreement Act.”

Both hospitals will now seek Vatican approval to complete the hospital merger.

The American Hospital Association (AHA) also released a statement that criticized the FTC for its stance on restricting hospital mergers.

“If nothing else, this case should serve as a wake-up call for the FTC to come to grips with how the health care landscape is changing and the proper role competition policy should play in that evolution,” Melinda Reid Hatton, AHA Senior Vice President and General Counsel, stated on the AHA News website.

Dig Deeper:

• What is the Future of Healthcare Mergers and Acquisitions?

• Hospital Merger, Acquisitions Bring Revenue Opportunities