FTC’s Hospital Merger Oversight at Risk in Louisiana, HCA Fight

The Federal Trade Commission is drawing a line in the sand after generally deferring to states to assess and approve certain hospital mergers that may pose anticompetitive issues in local markets.

For decades, the FTC has shrugged off hospitals’ use of state-issued “Certificates of Public Advantage” (COPAs) that allowed them to pursue mergers without risking the agency’s lawsuit to block the deal. But HCA Healthcare Inc.'s $150 million sale of three hospitals to Louisiana Children’s Medical Center (LCMC) has finally convinced the FTC to ask a court to weigh in on the issue.

The FTC has tangled with COPA laws before, but it has never gone to court over the decades-old statutes even as more states adopt them. If the commission loses this battle, newly empowered state COPA laws could weaken federal agencies’ authority to demand compliance in merger investigations.

“A win for the hospitals opens a path for health-care organizations thinking about doing these kinds of transactions to only deal with the states on COPA and potentially exclude the FTC,” said Lisl Dunlop, a partner at Axinn, Veltrop & Harkrider LLP. “If the FTC doesn’t know about these things and isn’t invited to give its views, it could be easier for parties to do mergers.”

Health-care consolidation is a major concern for the agency and Congress. The FTC last year released a study finding that several hospital mergers that had been granted COPAs led to higher prices, worse care, and lower pay for employees.

“Whatever the intentions are, when hospitals merge, prices go up,” Barak Richman, a Duke University School of Law professor, said at a House hearing on health-care consolidation May 17.

Dueling Lawsuits

Louisiana Children’s and HCA closed their deal in January. The FTC then threatened the companies with fines for not reporting the deal to the agency, as required by the Hart-Scott-Rodino (HSR) Act.

Companies that strike deals worth at least $111 million must comply with HSR reporting requirements by notifying federal regulators of their plans, complying with document requests, and cooperating with antitrust review.

The hospitals sued the FTC in April, seeking a court declaration that they don’t need to report their deal to federal antitrust regulators since they received the certificate. The FTC counter-sued, asking a judge to pause the hospitals’ integration so the agency could investigate the merger.

The FTC’s stated concern is that HCA’s deal wasn’t reported. But competition concerns surround the acquisition, which would reduce the number of major hospital systems in New Orleans to two from three. LCMC’s plan to close Tulane Medical Center post-merger would leave residents downtown without a nearby hospital or emergency room, said Michael Robertshaw, an ICU nurse at Tulane Medical Center and member of National Nurses United, a union that opposes the merger.

LCMC said in court filings that closing the downtown location would make another of its hospitals eligible for certain discounts on expensive drugs.

‘Growing Chorus’

Federal regulators and states have tussled over COPAs for decades.

Nineteen states, including most recently Tennessee, Virginia, Texas, and Indiana, have enacted laws to authorize the certificates.

While the HCA-LCMC deal triggered the FTC’s first lawsuit over a COPA, the agency has spoken out before against other COPA grants and advocated against the laws at state legislatures.

Following an agency investigation, FTC staff told the New York State Department of Health last year they opposed a COPA proposal that would have shielded SUNY Upstate Medical University’s acquisition of Crouse Health System from federal antitrust litigation. The parties abandoned the deal earlier this year.

But once a state grants a certificate to merging hospitals, the agency tends to back off, said Dunlop, the Axinn partner.

States cite the state action immunity doctrine—holding that federal antitrust laws don’t apply to deliberately anticompetitive conduct that states approve—when enacting COPAs. States have said they have greater expertise on local health care competitive conditions.

There’s a “growing chorus” of states that want to adopt COPA regulation, said Douglas Ross, a professor at the University of Washington School of Law.

“What we’re seeing is a growing trend to use state legislatures to shield otherwise anticompetitive and otherwise illegal conduct,” Richman told Bloomberg Law.

Hospitals are learning that COPAs are effective in dodging federal scrutiny, and that states lack the resources to follow through on enforcing concessions that merging parties accepted as a condition for the certificate, Richman added.

Deal Review Risks

Until now, courts haven’t been asked to rule whether COPAs exempt deal-making parties from HSR review.

Hospital operators with a merger deal are still wont to comply with federal laws by filing HSR documents, even if they fully plan to seek a certificate. Those documents are important for federal regulators because they can use that evidence to try to convince states to not issue a COPA for a deal.

In choosing to fight LCMC’s acquisition, the FTC could be risking its authority to at least review COPA-authorized hospital mergers.

If the FTC loses, the lawsuit will likely spell the end of the agency’s review of hospital mergers where a COPA is sought. That’ll weaken the commission’s ability to advocate against granting the certificate, Dunlop said.

But if the agency wins, it’ll have a reinforced tool against COPA use.

The case could be attractive for the Supreme Court because the hospitals’ federalism and state action arguments are particularly appealing to the current justices, Dunlop said.

“Getting the FTC’s involvement feels to me to be giving this deal a level of scrutiny and daylight that it did not have before,” said Robertshaw, the Tulane nurse. The FTC’s scrutiny “can only be a good thing,” he added.

The case is Louisiana Children’s Medical Center v. Attorney General of the United States et al, E.D. La., No. 2:23-cv-01305, filed 4/19/23.