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With hospital mergers, FTC warns state oversight isn’t sufficient


The Federal Trade Agreement warns that state Certificates of Public Advantage aren’t a substitute for antitrust laws, and lead to higher costs for patients.

Federal regulators have applied more scrutiny to hospital mergers, and they are sending a message that state oversight shouldn’t be a substitute for antitrust laws.

The Federal Trade Commission released a white paper this week on the problems inherent in state-issued “Certificates of Public Advantage.” The FTC says the certificates don’t protect the public interest and lead to higher costs for patients.

FTC Director of Policy Planning Elizabeth Wilkins said in a statement the Certificates of Public Advantage - often dubbed “COPAs” - don’t live up to their billing.

“Despite hospital claims that COPAs will result in lower costs and improved population health outcomes, we are not aware of any proven benefits of COPAs,” Wilkins said. “We urge state lawmakers to consult local health insurers, employers, and workers regarding the potential impact of COPA legislation.”

The FTC regularly challenges hospital consolidations that it finds lead to less competition, saying such deals lead to higher prices and reduced services for patients.

In markets with fewer competing hospitals, the FTC says there’s a consistent pattern of patients paying more for services. With less competition, hospitals can get higher payments from insurers, who pass the costs to consumers, the FTC says. Federal regulators also say mergers can lead to lower wages for workers.

The FTC contends that state laws allowing the Certificates of Public Advantage are meant to shield hospitals from regulatory oversight. The agency says COPAs restrict the FTC’s ability to challenge hospital mergers, and  the public often loses out.

Several states have enacted laws allowing Certificates of Public Advantage. Nine states have used COPAs to approve hospital deals, according to the FTC report: North Carolina, South Carolina, Montana, Maine, Minnesota, and most recently, West Virginia, Tennessee, Virginia, and Texas.

However, the FTC notes that a few states - North Carolina, Montana, and Minnesota - no longer allow those Certificates of Public Advantage.

The Mission Health System in North Carolina reflects concerns about mergers under Certificates of Public Advantages, the FTC said in the report. Memorial Mission Hospital and St. Joseph’s Hospital merged in 1998 to form Mission Health. Between 1996 and 2008, Mission Health raised prices by at least 20% more than peer hospitals, the FTC report stated.

President Biden issued an executive order in July 2021 directing regulators to closely examine mergers, including hospital deals, to ensure that consumers aren’t hurt by reduced competition.

The FTC has opposed some hospital deals this year, which led to health systems abandoning their plans.

HCA Healthcare planned to buy five hospitals in Utah from Steward Health, but the systems dropped those plans in June in the face of opposition from regulators. Just days earlier, RWJBarnabas Health and Saint Peter’s Healthcare System said they were ending their plans to merge the two New Jersey systems. Care New England and Lifespan, Rhode Island’s two biggest healthcare providers, ditched their plans to merge due to FTC opposition.

Hospital merger activity has slowed down with the COVID-19 pandemic.

In 2021, there were 49 hospital consolidations, down from 79 in the previous year, according to Kaufman Hall, a consulting firm. In the first six months of 2022, there have been 25 hospital deals announced, Kaufman Hall reported.

However, there have been some major hospital deals recently. Atrium Health and Advocate Aurora Health announced plans to merge in a deal that would create one of America’s largest non-profit hospital systems. Analysts say that deal is being closely watched because if it gains the approval of regulators, it could lead to other large hospital mergers.

Atrium and Advocate Aurora aren’t in overlapping markets, which avoids an issue that typically brings additional FTC scrutiny. Atrium, based in Charlotte, N.C., runs hospitals and care sites in North Carolina, South Carolina, Georgia and Alabama. Advocate Aurora operates in Illinois and Wisconsin. The systems say the deal will allow them to address disparities in healthcare, but critics say the merger could lead to higher costs for consumers.

Intermountain Healthcare completed its merger with SCL Health in April. The two systems weren’t operating in the same markets, and Intermountain CEO Marc Harrison pointed to the system’s “historic success in keeping costs down.”

Ochsner Health completed its acquisition of Rush Health Systems, now known as Ochsner Rush Health, earlier this month. Ochsner, based in Louisiana, gains seven hospitals in the deal, and expands the system’s footprint in Mississippi and Alabama.

Warner Thomas, president and CEO of Ochsner, said the merger will allow patients to obtain more services, including more options such as telehealth and remote patient monitoring, and more access to clinical trials.

Some analysts, including KPMG, have said they expect to see more hospital and health system consolidations in the coming year or two. Some hospitals that are struggling financially may need to find merger partners to stay alive, analysts say.

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