chevron-down Created with Sketch Beta.

    ARTICLE

    FTC, COPA & Evaluating Merger Impacts on Hospital Employees

    Panos Dimitrellos

    Dec 13, 2023

    6 min read

    Antitrust Antitrust Litigation & Enforcement FTC Antitrust Enforcement Mergers
    FTC, COPA & Evaluating Merger Impacts on Hospital Employees
    Reza Estakhrian via Getty Images

    Introduction

    On October 7, 2022, the FTC released a public comment regarding the Certificate of Public Advantage (COPA) application submitted by the State University of New York Upstate Medical University (SUNY Upstate) and Crouse Health System, Inc. (Crouse) to the New York State Department of Health (“NY DOH”). In the comment, the Federal Trade Commission (FTC) expressed concerns that the proposed merger between SUNY Update and Crouse would result in “higher healthcare costs, lower quality, reduced innovation and reduced access to care.” The public comment also expressed a more novel concern that the merger would cause “depressed wages for hospital employees” such as registered nurses and respiratory therapists.

    In recent years, the FTC has expressed increased interest in the effects of hospital mergers on hospital employees. The FTC’s comment on the SUNY Upstate and Crouse COPA application is their second recent comment on a COPA application in which the FTC expressed concern that a proposed hospital merger would have harmful monopsonistic effects on workers. In addition to comments on specific COPA applications, in August 2022, the FTC published a policy paper that warns about the negative impacts of COPA mergers more generally on healthcare workers. Accordingly, it is worth reviewing the FTC’s methodological approach in evaluating the impact of proposed hospital mergers on employees. This article summarizes the analysis used by the FTC in their public comments on the SUNY Upstate and Crouse COPA application.

    Background on COPA Applications

    Since the 1990s, many states have enacted COPA legislation. Under these laws, state governments are given authority to grant a COPA that gives merging hospitals immunity from federal and state antitrust enforcement. However, in exchange for the antitrust exemption, the merging parties may be subject to additional regulation such as a cap on profit margins. At least nine states have approved hospital mergers pursuant to COPA legislation.

    While the avoidance of antitrust scrutiny could enable hospital mergers that further public interests (e.g., allowing a failing hospital to merge and remain open), the FTC has advocated against the use of COPAs, frequently publishing commentary and providing testimony to state legislators and other stakeholders expressing concern that COPAs may enable mergers that substantially reduce competition.

    In 2017, the FTC announced a research initiative to assess the impact of COPAs on prices, quality, access, and innovation for healthcare services. Through that initiative, the FTC concluded that COPAs can be difficult to monitor and effectively regulate over a long period of time, and that COPA oversight regimes may not always be successful in mitigating price and quality harms resulting from a loss in competition. The FTC claimed that several COPAs have resulted in substantial price increases for patients, as well as declines in quality of care. Furthermore, the FTC has warned that, when COPA oversight is removed, the risk of price and quality harms increases significantly. Although the FTC does not have regulatory authority over COPA applications, they often issue public comments evaluating the potential competitive impact of the proposed merger.

    FTC’s Analysis of the SUNY Upstate and Crouse COPA Application and the Impact on Hospital Employees

    In public comments on the proposed merger between SUNY Upstate and Crouse, in addition to the FTC’s standard approach of evaluating the horizontal competitive impact of the proposed merger on commercially insured patients, the FTC also analyzed the “likely competitive effects of the proposed merger… on registered nurses and respiratory therapists.”

    To do so, the FTC evaluated labor concentration – and the change in concentration for hospitals as employers that is created by the proposed merger – in the “commuting zone for nursing labor… [in] the following six counties: Cayuga, Cortland, Madison, Onandaga, Oswego, and Tompkins.” Commuting zones are geographically contiguous groups of counties between which residents commute to work, constructed based on Census commuting flow data. In the case of urban areas, the commuting zone typically encompasses the county containing the large metropolitan area as well as surrounding counties that share the same labor pool. Commuting zones are identified and defined by the U.S. Department of Agriculture.

    For the purposes of its analysis, the FTC used the commuting zone to define the geographic area over which they calculated market shares. However, the FTC noted that a commuting zone may not be an appropriately defined antitrust market. This is a potentially significant limitation of the FTC’s analysis. If nurses or respiratory therapists exhibit a high willingness to commute or relocate for employment opportunities, or if there are other substitute sources for labor (e.g., temporary “traveler” nurses), then a broader geographic market, or even a national geographic market, may be more appropriate than a commuting zone. The FTC did not indicate an analysis of these issues and to what extent the properly defined geographic market was broader (or narrower) than the six-county commuting zone in this case.

    Using data from the American Hospital Association (“AHA”) on registered nurses and respiratory therapists, as well as data from (“CMS”) on total hospital employment, the FTC calculated market shares and HHIs:

    Hospital Employment Shares in SUNY Upstate-Crouse Commuting Zone
    (Based on 2020 AHA Data and 2018 CMS Data)   
     
          Registered Nurses Respiratory Therapists Hospital Employees
    Hospital/System County   FTE Share FTE Share FTE Share
    SUNY Upstate Onondaga   1,587 37.4% 74 30.8% 5,591 35.2%
    St. Joseph's Onondaga   843 19.9% 52 21.7% 3,107 19.5%
    Crouse Onondaga   538 12.7% 34 14.2% 2,322 14.6%
    Cayuga Medical Center Tompkins   434 10.2% 25 10.4% 1,203 7.6%
    Oswego Health Oswego   263 6.2% 18 7.5% 854 5.4%
    Auburn Community Hospital Cayuga   178 4.2% 9 3.8% 702 4.4%
    Oneida Health Madison   162 3.8% 17 7.1% 703 4.4%
    Gurthrie Cortland Medical Center Cortland   122 2.9% 6 2.5% 612 3.8%
    Community Memorial Hospital Madison   72 1.7% 5 2.1% 218 1.4%
    Richard H. Hutchings Psychiatric Center Onondaga   42 1.0% 0 0.0% 585 3.7%
                     
    Combined SUNY Upstate - Crouse Share:      50.1% 45.0% 49.8%
     
    Pre-merger HHI:     2,144 1,860 1,988
    Post-merger HHI:     3,093 2,734 3,015
    Change in HHI:     949 874 1,027

    The FTC’s calculations of market shares were based on employee headcount. Based on those calculations, the FTC concluded that “the labor markets for both registered nurses and respiratory therapists will be highly concentrated after the proposed merger, and that the merger would increase concentration significantly.”

    FTC’s Analysis Follows a Recent Economics Paper

    The FTC’s analysis was based on a recent economics paper by Elena Prager and Matt Schmitt (hereinafter Prager and Schmitt). Prager and Schmitt examine the effects of acute-care hospital mergers between 2000 and 2010 on the wages of three categories of hospital workers: unskilled workers whose tasks are not specific to the medical field, skilled workers in nonmedical occupations, and skilled health care professionals (specifically nurses and pharmacy workers). They compare wage growth in commuting zones that experience a concentration-increasing merger to wage growth in commuting zones without any merger activity. Concentration was calculated using a hospital’s number of full-time equivalent employees as a metric for employer size. Their main analyses directly examine the impact of concentration-increasing mergers on subsequent wage growth. The authors control for non-merger related changes in employer concentration in order to isolate the dependency between wage and change in market concentration that is most directly related to employer consolidation.

    Prager and Schmitt run difference-in-differences regressions to compare changes in wages in labor markets that experience a merger to changes in wages in labor markets without any merger activity. The authors find that when there is a significant increase in concentration induced by a merger, annual wage growth is 1.0 percentage points slower for skilled non-health care professionals and 1.7 percentage points slower for nursing and pharmacy workers than in markets without mergers. Notably, the study did not find an impact on the wage growth of unskilled workers, possibly because this group had the “broadest set of potential employees.”

    The FTC’s analysis of the SUNY Upstate and Crouse COPA closely followed the spirit of Prager’s and Schmitt’s analysis. In their analysis of concentration changes using total hospital employment, the FTC used “the exact data and methodology employed in the Prager and Schmitt study.” In their analyses of concentration changes of registered nurses and respiratory therapists, the FTC used different data sources than those employed by Prager and Schmitt. However, the FTC explicitly noted that the concentration levels they calculated were “very close to the 75th percentile among hospital mergers calculated in the Prager and Schmitt study, which found negative effects on hospital employee wage growth for mergers causing an increase in concentration above the 75th percentile.”

    The general applicability of the Prager and schmitt methodology and results to a particular merger is an open question. A fulsome evaluation of the impact of a hospital merger on employees requires a more complete analysis of the particular fact pattern of a merger. Nevertheless, the FTC’s focus on predicting the effects of a hospital merger using the Prager and Schmitt methodology suggests that it is an important analysis for antitrust practitioners to be familiar with.

    Conclusion

    The FTC’s interest in the effects of hospital mergers on employees is likely to grow. Practitioners representing clients involved in hospital and other healthcare provider transactions should be aware of the FTC’s use of the Prager and Schmitt methodology as an initial tool of evaluation and stay apprised as the FTC refines their approach to evaluating the impact of such deals on labor markets.

      Author