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: