On March 12, the West Virginia legislature passed a bill that would exempt state healthcare providers from federal antitrust scrutiny when acting under the jurisdiction of the West Virginia Health Care Authority (Authority). Notably, the bill would potentially shield the proposed purchase of St. Mary's Medical Center by teaching hospital Cabell Huntington—a merger that is currently under challenge by the Federal Trade Commission (FTC) as anticompetitive. These events continue a trend of state governments acting to exclude or limit the role of federal antitrust authorities in state healthcare markets, and demonstrate the tension that can arise between state law and policy and federal antitrust enforcement.
FTC Challenge to Cabell Huntington-St. Mary's Merger
In November 2014, Cabell Huntington Hospital announced an agreement to acquire St. Mary's after the Pallottine Missionary Sisters, the Catholic-affiliated organization that had operated the hospital for 90 years, decided to end their sponsorship of the medical center. In publicizing the transaction, the parties described their aim to create an integrated delivery system and improve quality and efficiency of care.1
In July 2015, the presidents of both hospitals signed an agreement with the state's Attorney General (AG), which imposed a series of conditions on the merging hospitals for a seven-year period. These conditions included:
- Maintaining St. Mary's as a free-standing, general acute care, faith-based organization;
- Maintaining service rates at benchmarks established by the Authority;
- Reducing rates in the event that operating margins exceed an average of 4% during any three-year period;
- Maintaining open staffs and granting privileges to all qualified physicians; and
- Not opposing the award of a certificate of need to any potential competing healthcare provider.
The agreement also included multiple conditions to improve access and enhance the quality of healthcare, particularly in medically underserved areas.2 In announcing the agreement, the AG asserted that the conditions negotiated protected the best interests of West Virginia citizens. The AG also communicated his support for the merger to the FTC.
After conducting its own investigation and determining that the conditions in the agreement with the West Virginia AG would not preserve the benefits of competition that would be lost as a result of the transaction, the FTC filed an administrative complaint in November 2015 opposing the proposed merger. According to the FTC, the two hospitals are each other's closest competitors, and elimination of this competition would lead to increased prices and reduced quality of healthcare services in Huntington, West Virginia, and its surrounding communities. The FTC alleges that the merged hospital would have a "near monopoly" over general acute care inpatient hospital services (with a market share of over 75%) and outpatient surgical services.3 An administrative trial is scheduled to commence on April 5.
On March 12, 2016, Senate Bill 597 passed the West Virginia Legislature. The bill would permit "cooperative agreements" between a teaching hospital and one or more hospitals (located, at most, 20 miles apart). The bill would allow, among other transactions, consolidation by merger or other combinations of assets, subject to approval by the AG and the Authority. The bill would not give West Virginia hospitals and providers free rein to act anticompetitively; rather, West Virginia's AG and the Authority would be required to weigh the potential loss of competition from a merger or other cooperation against its asserted efficiencies and public benefits in considering whether to grant approval.
The bill would arguably serve to shield the Cabell Huntington-St. Mary's merger from the FTC's challenge, since that merger has been reviewed and approved by the Authority and the AG. The Cabell representative on the Judiciary Committee has said that it will be "up to the federal court" to determine whether West Virginia's framework for antitrust immunity is effective in displacing federal antitrust law,4 anticipating a possible FTC challenge to the grant of state action protection.
FTC Opposition to West Virginia Legislation
On March 10, 2016, in response to a request from a West Virginia House member, the FTC issued written comments, opposing the West Virginia legislation and raising concerns about its potential anticompetitive effects. The FTC stated that federal antitrust law permits cooperative arrangements that benefit consumers, and that the West Virginia bill "incorrectly assumes that the antitrust laws prohibit efficient healthcare mergers, acquisitions and collaborations."5 As a result, the FTC argued this bill could serve to advance anticompetitive activity that is inconsistent with federal antitrust law and policy and has the potential to seriously harm consumers. Given that the bill was passed only very recently, it remains to be seen whether the FTC will either be successful in forestalling its introduction or challenging it in court.
Takeaways: Tension Between State Law and Federal Antitrust Enforcement
The current debate between West Virginia and the FTC is another example of the tension that can arise between state healthcare industry regulation and federal antitrust enforcement. Although the FTC consistently advocates that healthcare policy and antitrust need not be at odds, several states have enacted rules and legislation protecting certain state healthcare actors from federal antitrust enforcement with the goal of promoting broader public health policies. On numerous occasions, the FTC has expressed its opposition to such laws through issuance of formal advocacy letters and comments to state legislators and regulators, including, for example:
- In October 2015, opposing regulations proposed by the Virginia and Tennessee Departments of Health regarding hospital cooperation agreements in each agency's respective state.6
- In June 2015, opposing proposed legislation in New York that would grant federal and state antitrust immunity to certain healthcare corporations and entities with which they negotiate in order to engage in collaborative activities, including information sharing and joint contracting.7
- In May 2015, opposing a proposed Oregon bill that included language intended to provide federal antitrust immunity for certain information exchanges and agreements among the state's healthcare market participants.8
- In April 2015, opposing Certificate of Public Advantage (COPA) applications submitted to New York State by three newly formed performing provider systems under the Delivery System Reform Incentive Payment (DSRIP) program to obtain federal antitrust immunity for certain collaborative activities among providers, including joint price negotiations.9 (See our March 2015 "Health Update" newsletter for additional discussion of the FTC's concerns in this matter.)
- In June 2011, expressing opposition to a proposed Connecticut bill that would immunize healthcare provider-members of certified "cooperative arrangements" from state and federal antitrust laws when negotiating with managed care organizations and engaging in certain other activities.10
In all of these cases, the FTC opposed proposed state legislation and regulation on the basis that the federal antitrust laws permit procompetitive joint activity; therefore, each state's proposed laws establishing certain antitrust immunities would effectively shield anticompetitive behavior that would not otherwise pass muster under federal antitrust law. As a result, the FTC contends that the proposed state laws each posed substantial risk of consumer harm, and such antitrust exemptions are to be disfavored.
But is this necessarily true? Although the various state legislation discussed above displaces the FTC as enforcer in certain state healthcare matters, most legislative schemes retain oversight by state attorneys general, which often have their own antitrust experts, and frequently require other state bodies (such as Departments of Health) to pay attention to competition principles in exercising such oversight. Further, the FTC's criticisms ignore the state's broader policy interests in managing healthcare competition within its own borders—such as access to healthcare for underserved communities—which may supersede antitrust concerns. This concern has been recognized by Commissioner Julie Brill, who issued a dissenting opinion on the FTC and Department of Justice's (DOJ's) joint statement in relation to South Carolina's Certificate-of-Need laws, noting:
"Healthcare policy makers at the state level are faced with difficult issues separate and apart from the strong benefits competition brings to healthcare markets. These include the critically important issue of preserving access to care for the needy, and doing so in a complex market, involving informational asymmetries among patients, providers, and payors. In this context, it is important to understand that competition will not move resources from those that can afford healthcare to those that cannot."11