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FTC Hosts ‘Health Check on COPAs: Assessing the Impact of Certificates of Public Advantage in Health Care Markets’

On June 18, 2019, the Federal Trade Commission (FTC) hosted a workshop to discuss and analyze the effects of Certificates of Public Advantage (COPAs) and Certificates of Need (CONs) on price and access to health care services, health care innovation, and quality of services.

The workshop was part of a broader effort instituted by the FTC in 2017­­­ to assess COPAs and CONs by seeking research that can more fully support public policy decisions and by soliciting input and comments from relevant stakeholders, including health care providers, payers, consumers, state officials, policy experts, academics, and economists. Speakers and panelists at the workshop included the Chairman of the FTC and other FTC representatives; representatives from the offices of the Attorneys General in Montana, North Carolina, Pennsylvania, and Tennessee; third party payer representatives; and independent health care service groups. The workshop included panels on policy considerations for COPAs, reviews of some of the outcomes associated with COPAs, and a discussion of the efficiency of competition versus regulation in generating improvements in price, quality, access, and innovation to healthcare services.

Background

A COPA is a legal mechanism by which a state approves mergers between and among two or more hospitals. Because the merger results in the reduction or elimination of competition, the possible or effective monopoly is granted in return for state-imposed obligations to provide increased public benefits and control the growth of heath care costs. According to the FTC Chairman, there are at least four COPAs that are operational across 24 states.

A CON is a legal mechanism that regulates the growth of construction of new health care facilities. It is a regulatory structure that is premised on the idea that saturation and redundancy of facilities in health care markets leads to inefficient expenditures and ultimately higher health care costs. The public policy theory underlying CONs is that, by limiting the volume of health care facilities and equipment in the marketplace, costs and resources will be more effectively controlled. Healthcare CONs exist in at least 35 states. However, perhaps as a sign of things to come, Florida recently repealed significant portions of the state’s CON laws; some of the repeal, including those provisions applicable to acute care hospitals, took effect July 1. Because CONs possess similar policy goals as COPAs, those who have hesitations with COPAs share the same views as applied to CONs.

The goal of the workshop was to consider public comments and present information regarding whether COPAs are fulfilling their intended purpose of decreasing prices while increasing quality and access. The FTC has not historically viewed COPAs and CONs favorably, and based on the views and comments presented at the workshop, the agency continues to hold the view that competition, rather than state regulation, is the best method of serving consumers. The information gathered as part of the workshop, along with the FTC’s ongoing effort to seek public comments, is intended to enable the FTC to continue assessing the different enforcement strategies and policy considerations available for use when challenging a proposed COPA.

Key Takeaways From The Workshop

It is difficult for researchers to determine a baseline of relevant measures to assess the effects of COPA and CON structures due to a lack of public data.

Thus, the FTC faces the challenge of obtaining definitive data that evaluates the harms, as well as benefits, of COPAs and CONs. It is also difficult for researchers to evaluate whether lower hospital prices on inpatient services necessarily result in lower insurance costs. Limitations aside, most research assessing the impact of COPAs and/or CONs seems to show a negative effect on long-term prices and quality, particularly if the regulation is lifted.

Those with experience in drafting and implementing COPA regulations have hesitations about the regulatory structures, but states continue to pass legislation that impose such requirements.

For example, earlier this month, Texas passed H.B. No. 03301, authorizing COPAs in the state. Tennessee and Virginia also recently have been involved with a COPA as part of the implementation of the Ballad Health merger in their respective states. In order to help mitigate the anticompetitive risks associated with COPAs, both states carefully studied previous COPAs and used this guidance when implementing the Ballad COPA. Despite facing negative feedback, this COPA is highly regulated and structured in order to avoid the hurdles previous cooperatives have faced, particularly in the event the COPA dissolves.

An abolition of COPA regulations does not necessarily indicate that a merger will run afoul of antitrust laws, so long as the arrangement is pro-competitive.

The FTC is interested in targeting mergers that are COPA-protected, but in the absence of a COPA, would likely have violated antitrust laws. For example, in areas where there is a highly concentrated market both pre- and post- merger, the market is more likely to show an anticompetitive effect, but for a COPA.

Although the competitive marketplace is not perfect, the FTC and others hold the view that it is preferred over COPA and CON structures.

The agency continues to believe that COPAs and CONs are anti-competitive and anti-free market, since such regulations may artificially restrict services, creating undesirable market effects. The FTC and relevant stakeholders expressed a preference for free market competition over artificial state-driven markets (markets with a restricted number of participants due to state regulations).

Conclusions

Although COPAs and CONs are intended to help foster affordable, innovative, accessible, and quality healthcare services, there is a lack of research providing definitive answers regarding whether the benefits of these regulatory schemes outweigh the harms. It is, however, unlikely that we will see the end to such regulations anytime soon.

The FTC is accepting written public comment on COPAs through July 31. Stakeholders who may be affected by the FTC’s views on COPAs should take this opportunity to provide comments and information that may help guide the agency’s actions going forward.

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