What the FTC’s Study of COPAs Means for Hospital Mergers

October 29, 2019 - The Federal Trade Commission (FTC) issued orders to five health insurance companies and two health systems seeking data to study the effects of state-level regulatory regimes known as certificates of public advantage (COPAs), which immunize hospital mergers from antitrust scrutiny. 

COPAs are being studied by the FTC to uncover the impact hospital consolidation has on prices, quality, access and innovation of healthcare services. 

The five insurance companies receiving orders from the FTC include Aetna, Inc., Anthem, Inc., BlueCross BlueShield of Tennessee, Cigna Corporation, and United Healthcare, while the two health systems receiving orders are Ballad Health and Cabell Huntington Hospital, Inc.

These orders seek aggregated patient billing and discharge data, health system employee wage data, and other information relevant for analyzing the health systems’ prices, quality, access, and innovation.  

In June of this year, the FTC held a public workshop to present empirical research on the price effects of three COPAs approved in the 1990s, including Benefits Health System in Montana, Palmetto Health in South Carolina, and Mission Health in North Carolina. Workshop testimony and public comments informed the current study design. 

READ MORE: Hospital Mergers and Acquisitions Reduce Costs, AHA Report Shows

Information will be collected over the next several years to help FTC staff to conduct retrospective analyses of the Ballad Health and Cabell COPAs. FTC intends for the study to enhance the agency’s knowledge of COPAs and inform future advocacy and enforcement, as well as serve as a resource for state governments and stakeholders who may be considering using COPAs.  

Hospital mergers and acquisitions are increasing at a rapid rate. 2017 saw a record high with 115 transactions, and 2018 was not far behind with 90 announced transactions, consulting firm Kaufman Hall reported. The value of these deals also grew by 146 percent between 2016 and 2017, reaching a total of $175.2 billion, PricewaterhouseCoopers reported. 

A recent American Hospital Association (AHA) report stated that hospitals save $6.2 million in annual operating experiences and $9.2 million in net patient revenue per adjustment admission per year after an acquisition. 

Other benefits included patient access to care from alignment with other types of healthcare providers, a greater ability to ensure patients receive care in the most appropriate setting, and more capacity to take on financial risk, the AHA reported

But other evidence counters the claims from the AHA report. One of the more comprehensive analyses of the impact of hospital mergers and acquisitions on prices showed prices at monopoly hospitals were 12 percent higher than those in markets with four or more rivals and monopoly hospitals negotiated more favorable terms with hospitals.

READ MORE: Mega Mergers Behind Recent Hospital Merger and Acquisition Activity

A recent study of cross-market hospital mergers also found that prices increased by seven to ten percent if merging hospitals are 30 to 90 minutes apart. Price increases at the acquirer were also unlikely to be associated with quality improvements, she concluded.

The FTC’s retrospective analysis on COPAs could impact how hospitals and health systems move forward with their mergers. 

For example, a merger between two competing hospitals in northeast Tennessee - Mountain States Health Alliance and Wellmont Health System – formed Ballad Health. 

The FTC was averse to the merger between the two non-profit hospitals because the agency feared the system would form a monopoly that could limit patient choice, cut services, raise prices, and diminish quality. The merger was only made possible by a change in Tennessee law to bypass the COPA law, which requires that merger benefits to the public must outweigh the cost of eliminating competition. 

Ballad Health now operates 21 hospitals and employs more than 815 physicians that serve 20 counties and 1.2 million people in southwest Virginia, northeast Tennessee, and parts of Kentucky and North Carolina. 

READ MORE: FTC’s Approach to Assessing Hospital Mergers Flawed, AHA Says

For most people in the region, Ballad hospitals are the only option for inpatient care.

While the Ballad Health merger proved to be successful, the FTC has been more than critical of proposed deals, blocking potential mergers such as the one between Advocate Health Care and NorthShore University Health System In 2016. 

“Vigorous enforcement of the antitrust laws is more important than ever,” Edith Ramirez, former FTC Chairwoman, said in 2016. “Most provider mergers are not anti-competitive, but the few that are could cause significant competitive harm.” 

Leaders of healthcare organizations tend to highlight how merging with or acquiring another provider will reduce costs, improve care quality, and expand patient access, but, the deals must meet criteria laid out by antitrust regulations. 

To benefit consumers in their community and avoid antitrust challenges, an organization’s growth strategy should prioritize meeting the needs of all patients. For example, carefully considering their merger transactions to ensure value to both the organization and consumer, as well as reducing costs in their local market, are steps in the right direction.