West Virginia recently passed legislation aimed at shielding an in-state hospital merger from antitrust review by the Federal Trade Commission, and if the West Virginia Health Care Authority and West Virginia Attorney General approve the merger, other states could follow suit. Recent developments, including the FTC’s reaction to West Virginia’s proposed legislation, preview how future battles between the FTC and other states may unfold as the FTC continues to oppose state action grants of immunity from federal antitrust laws.
At issue is Cabell Huntington Hospital’s proposed acquisition of St. Mary’s Medical Center, also located in Huntington. The FTC challenged the merger in a complaint filed on November 5, 2015. The FTC alleged that the merger would create a near monopoly over general acute care, inpatient hospital services and outpatient surgical services which would leave to higher prices and lower quality.
However, West Virginia believed that the FTC’s scrutiny was too strict and failed to see the benefits of the proposed merger. On March 18, 2016, West Virginia Governor Tomblin signed a bill that exempts health care providers from state and federal antitrust liability when they act under the direction or approval of the West Virginia Health Care Authority. Under the bill, the West Virginia Health Care Authority would be the sole decision-maker on health care provider consolidations and the FTC would not have the authority to challenge a proposed merger.
Traditionally, states that want to immunize healthcare deals from federal antitrust action must prove that the state has a clearly articulated and affirmatively expressed policy of displacing competition with regulation and the state must show it’s actively supervising the conduct of merging hospitals. West Virginia’s law would allow it to technically bypass those requirements, but it remains to be seen in practice whether the state-level scrutiny would be more or less burdensome.
The FTC’s administrative trial reviewing the proposed merger was scheduled to begin on April 5, 2016. However, as a result of the legislation, on March 24, 2016 in response to a joint request from the West Virginia hospitals and the FTC staff, the Commission issued an order withdrawing the matter from adjudication for thirty days. The withdrawal was to allow “the Commission to review the legislation ─ and to hear from both Complaint Counsel and Respondents as to the relevance of the legislation” to the pending proceeding.
Under the legislation, the West Virginia Health Care Authority will have to decide whether to approve the hospitals’ application to merge. Given that the decision has not been made, the FTC decided to tentatively stay on the sidelines pending West Virginia’s decision. On April 18, 2016, FTC complaint counsel and the hospital respondents filed a joint motion to extend the withdrawal of the matter from FTC adjudication and to continue that stay of the proceedings until 14 days after the West Virginia Health Care Authority “issues its written decision” regarding the hospitals’ application. As a condition of their joint motion, the hospital respondents agreed not to consummate the transaction while the matter is withdrawn from FTC adjudication. On April 22, 2016, the FTC ordered that a withdrawal of the matter and a stay of the proceedings until “11:59 p.m. EDT on the 14th calendar day after the West Virginia Health Care Authority issues its written decision, pursuant to Section 16-29B-28(e)(3) of the Code of West Virginia, regarding the Application for Approval of Cooperative Agreement (Acquisition of St. Mary’s Medical Center) filed by Respondent Cabell on March 25, 2016.”
Meanwhile, the West Virginia Health Care Authority had opened a ten-day public comment period regarding the merger ending April 18, 2016. The West Virginia Health Care Authority received eighteen letters, including one from the FTC.
The West Virginia Health Care Authority and the West Virginia Attorney General have until June 8, 2016 to issue a written decision on the proposed merger. All eyes will be on West Virginia and the FTC over the next few weeks. Some believe that if the merger is approved, that the West Virginia law will serve as a blueprint for other states to avoid federal scrutiny over mergers in their states.