FTC Urges States to Repeal COPA Laws, Prevent Illegal Hospital Mergers

The Federal Trade Commission (FTC) has urged state lawmakers to repeal Certificate of Public Advantage (COPA) laws, asserting that the agreements allow otherwise illegal hospital mergers to bypass antitrust laws.

When hospitals seek to merge but are concerned that the deal will violate federal antitrust laws, they can apply for a COPA. A COPA allows merging hospitals to enter an agreement with the state instead of facing FTC regulations. The state will permit a hospital merger as long as the hospital agrees to state oversight of prices, quality, and other metrics that the deal could impact.

According to FTC, COPAs aim to replace competition with state oversight and limit FTC’s ability to challenge hospital mergers that are likely to harm patients and employees.

“Mergers that lead to lower prices or better health outcomes for patients are unlikely to violate antitrust laws and thus would not require COPAs to mitigate anticompetitive harms,” FTC wrote in its policy paper.

At first glance, COPAs seem beneficial for both sides, allowing hospitals to finalize merger deals and allowing states to prevent adverse changes in healthcare prices and quality. However, regulating hospitals creates significant work for state health departments.

COPAs only function correctly if states continue their oversight. Regulatory fatigue, staff turnover, and changes in funding priorities at state agencies can lead to less supervision over time, FTC said.

Many states repeal their COPAs after a while due to the increased burden, leaving the merged healthcare system with no regulations to follow. Oftentimes this leads the health system to exercise increased market power or form a monopoly and raise healthcare prices.

Past research has shown that COPAs have led to significant price increases and reduced quality of care. This has happened after COPAs are repealed or expire, but it could also occur while the COPAs are in effect if state health departments struggle to implement regulations and monitor hospitals.

For example, MaineHealth acquired Southern Maine Medical Center under a COPA. The agreement established price and margin regulations for only one hospital in the system and the COPA expired automatically after six years. Following the expiration, prices at Southern Maine Medical Center grew by 50 percent and care quality worsened.

Hospitals frequently claim that their proposed mergers will help improve their financial conditions and, in turn, increase access to care for patients. However, in the last four mergers FTC investigated that received a COPA, the hospitals had enough financial resources to continue operating independently and maintain patient access to care without a merger.

“Indeed, if a hospital is truly failing financially and the proposed merger is the only way for it to remain viable, the FTC is unlikely to challenge such a merger and the hospital does not need COPA protection against antitrust enforcement,” the policy paper stated.

In addition, FTC asserted that competition generates the lowest prices and highest quality of care for patients, not consolidation.

When hospitals have significant market power, they can generally demand higher rates from insurance plans, which are passed on to consumers as higher premiums, deductibles, and out-of-pocket expenses.

“When considering a request for a COPA to permit a merger that will eliminate competition, we urge state lawmakers to consult local health insurers regarding the impact that COPA legislation could have on their ability to negotiate competitive rates or implement value-based delivery and payment models, as this could have a big impact on patients and employers,” FTC wrote.

On the other hand, a competitive market typically leads to lower healthcare prices and incentivizes hospitals to improve care quality and access to services.

FTC’s goal is to challenge anticompetitive hospital mergers and acquisitions. COPAs shield these transactions from antitrust enforcement, often resulting in negative outcomes.

“Antitrust authorities are better positioned to challenge anticompetitive mergers that are likely to result in higher prices and reduced quality of care for patients when we do not face the litigation obstacles presented by COPAs,” FTC concluded. “We invite state lawmakers to engage with us in addressing the problems associated with anticompetitive hospital consolidation and avoid the use of COPAs.”