FTC Administrative Actions and Comments Indicate Shifting Landscape for Hospitals and Other Providers

Vol. 12 No. 6

AuthorAuthorLast year was a busy year for the Federal Trade Commission (FTC) as it continued to increase its focus on mergers involving healthcare providers, and there is no reason to believe that enforcement will slow in 2016.

2015 began with the Ninth Circuit affirming the lower court decision that ordered the divestiture of St. Luke’s Health System’s acquisition of a physician practice because of the effects the transaction would have on the primary care market in the Boise, Idaho metropolitan area.1 The court reached its decision despite acknowledging that the merger would likely improve patient care and rejected a proposed efficiencies defense.2 The FTC continued its active enforcement of antitrust laws in the healthcare industry, picking up speed as the year drew to a close.

Recent FTC Cases Involving Hospitals

The FTC was especially active in hospital transactions in the last two months of 2015.3 On November 26, 2015, it filed an administrative complaint alleging that the proposed deal between two West Virginia hospitals, Cabell Huntington Hospital and St. Mary’s Medical Center, would lead to a “near monopoly” and could result in “higher prices and lower quality of care.”4 The FTC said in the related press release that it would go to federal court for a preliminary injunction “if, and when, necessary” to stop Cabell from acquiring crosstown rival St. Mary's if the Catholic Church and state officials allow the deal.5 The case is still in the discovery phase.

Continuing its active review of healthcare transactions, on December 8, 2015 the FTC authorized an administrative action to block Penn State Hershey Medical Center’s proposed merger with PinnacleHealth System, alleging that the combination of the two healthcare providers would substantially reduce competition in the Harrisburg, Pennsylvania area.6 In the administrative complaint, the FTC alleged that the proposed merger would create a dominant provider of general acute care inpatient hospital services in south-central Pennsylvania, leading to higher healthcare costs and reduced quality of care. The FTC also authorized staff to seek a temporary restraining order and a preliminary injunction in federal court to prevent the parties from consummating the transaction, pending the results of the administrative proceeding. The administrative trial is scheduled to begin on May 17, 2016, and the parties have proposed that an injunction hearing be held in April 2016.7

On December 18, 2015, the FTC took action to block the proposed merger of Advocate Health Care Network and NorthShore University HealthSystem, two leading providers of general acute care inpatient hospital services in the North Shore area of Chicago.8 The combined entity would operate a majority of the hospitals in the area and control more than 50 percent of the market for general acute care inpatient hospital services. The administrative complaint alleges that the result would likely be significant harm to consumers, predicting rising healthcare costs and diminished incentives to upgrade services and improve quality. On December 22, 2015, the FTC and the Illinois Attorney General filed a complaint in the U.S. District Court for the Northern District of Illinois seeking a preliminary injunction to prevent the health systems from completing the merger, pending the FTC administrative proceeding. A hearing on the preliminary injunction has been set for April 6, 2016.9

FTC Scrutiny of State COPA Activity and Regulations

The FTC has also gotten involved in cases in which merger parties attempt to rely on state action immunity arising out of a specific state statute in order to merge without FTC scrutiny. In Tennessee and Virginia, Mountain States Health Alliance (MSHA) and Wellmont Health System continue to move forward with a proposed merger, hoping to rely on the Certificate of Public Advantage (COPA) process in both Tennessee and Virginia in order to eliminate the need for FTC involvement. The COPA process sets forth a statutory framework through which state departments may approve transactions which might otherwise run afoul of the antitrust laws, providing state action immunity to federal antitrust challenges, if the likely benefits of a transaction outweigh disadvantages attributable to the expected reduction in competition. The proposed MSHA-Wellmont merger prompted the Tennessee and Virginia state legislatures to amend their respective COPA-enabling legislation and caused the Tennessee Department of Health to seek an FTC advisory opinion.10 In September, the FTC’s Office of Policy Planning, Bureau of Competition and Bureau of Economics sent non-binding public comment letters to each state, offering FTC staff assistance to the Tennessee and Virginia health departments during their reviews of any COPAs, given the FTC’s significant experience in the area.11 In the opening paragraph of each comment letter, the FTC noted that its comments are intended to help ensure that any decision regarding the potential benefits and disadvantages of a proposal are based on a rigorous competitive analysis. The comments also reiterated the FTC’s longstanding position that legislation intended to grant antitrust immunity is likely to harm healthcare consumers.12

The submitted comments, which were provided by the FTC but not accepted in any formal way by the states, noted that the Tennessee and Virginia Departments of Health are authorized to approve COPAs if it is determined that the likely benefits of the agreement outweigh the likely disadvantages from a reduction in competition. The state COPA rules provide that the Tennessee Attorney General’s Office and the Virginia Commissioner of the Department of Health may consult with the FTC when reviewing an application. Each state’s rule identifies potential benefits and disadvantages, many of which, the FTC noted, are factors which the FTC would assess when evaluating mergers. The FTC indicated its willingness to provide any expertise and information that it is authorized to share in connection with review of COPA applications, and in the concluding paragraph of each comment letter asked the state departments to incorporate concepts of permissible sharing of information and expertise between the state departments and the FTC in the rules to be promulgated.

MSHA and Wellmont are expected to formally file their COPAs sometime in the first quarter of 2016. In January 2016, the parties filed a pre-submission report seeking to educate the public on the rationale for the merger, providing for a formal process to collect community feedback and physician input. This report describes how the states would be able to supervise operations post-closing, including commitments of future investments in various programs, and describes the anticipated common platform for electronic medical records. Although at this point the states are in charge of regulating the merger through the COPA process, there is still the possibility that the FTC could get involved formally by filing an administrative complaint or an action in federal district court challenging the transaction.13

COPA regulations in New York have also garnered FTC scrutiny. In April 2015, the FTC submitted public comments on pending COPA applications submitted in December 2014 by three newly formed performing provider systems under the Delivery System Reform Incentive Program (DSRIP).14 In its comments on the three applications, the FTC expressed broader concerns that combining the DSRIP program with the COPA regulations would encourage healthcare providers to share competitively sensitive information and engage in joint negotiations with payors in ways that will not yield efficiencies or benefit consumers. Beyond the scope of the DSRIP program, the FTC indicated that New York’s COPA regulations are unnecessary to promote the goals of healthcare reform and that the COPA scheme is likely to foster anticompetitive conduct to the detriment of consumers. The FTC stated that it will continue to challenge defenses based on asserted state action immunity where the state fails to provide adequate active supervision.

Challenging state action immunity is not a new antitrust enforcement strategy.15 However, although COPA statutes have been on the books in several states for a few years, they have not been tested frequently. As the FTC has been emboldened by recent successes,16 it is poised to resist provider achievement of state action immunity through a reliance on COPA statutes.

FTC Commentary on State COPN/CON Programs

The FTC has also gotten involved in state legislative and regulatory activity relating to Certificates of Public Need (COPNs) and Certificates of Need (CONs). COPN and CON laws require hospitals and other providers to obtain state government approval before constructing facilities, expanding service lines, acquiring certain equipment, making significant capital expenditures and engaging in other types of projects.17

On October 26, 2015, in response to a request by Virginia State Delegate Kathy Byron, a Republican representing the 22nd district of Virginia which includes the City of Lynchburg, the Department of Justice’s Antitrust Division and the FTC (the Agencies)18 submitted a joint statement to the Virginia Certificate of Public Need (COPN) Work Group suggesting that Virginia reconsider whether its COPN program best serves the needs of its citizens. The final report issued by the Virginia COPN workgroup recommends improvements to the existing COPN program, but does not suggest that the program be eliminated.19 Despite reference to the Agencies’ concerns over the “serious anticompetitive risks” associated with CON programs, on January 21, 2016 the U.S. Court of Appeals for the Fourth Circuit upheld Virginia’s CON laws in a challenge by two out-of-state providers alleging that the CON regime illegally discriminates against out-of-state healthcare providers.20

 Moreover, the Agencies recommended repeal of South Carolina’s CON program in its entirety in a joint statement issued on January 11, 2016.21 The statement analyzed a legislative proposal that would narrow the application and ultimately repeal the state’s CON laws, discussing the ways in which CON laws may undermine the efficient functions of healthcare markets by creating barriers to entry, allowing providers already in a market to impede the entry of competitors and denying the benefits of an effective remedy (such as divestiture) following consummation of an anticompetitive merger. The Agencies determined that the proposed narrowing of the CON laws would actually be anticompetitive and recommended repealing the CON laws completely, emphasizing that quality of care arguments should not preclude CON reform. The Agencies’ interest in CON programs is not new, as is outlined in the joint statement, but this most recent (and rather robust) statement coupled with the FTC’s involvement with state COPA processes signals that the FTC is not content to leave antitrust enforcement to the states.  


From judicial and administrative actions to increased involvement in the implementation of state statutes and regulations, it is clear that the FTC intends to continue its active enforcement of the antitrust laws in the healthcare industry. A study published by the National Bureau of Economic Research22 at the end of 2015 analyzed healthcare spending across multiple markets and provided support for the FTC’s concerns in healthcare transactions, concluding that private insurance prices are 15 percent higher when hospitals had no competition compared to markets with at least four hospitals. As providers are driven to consolidate for integrated care as a result of the Patient Protection and Affordable Care Act,23 they must not lose sight of the need to conduct a comprehensive traditional antitrust analysis. 


Beth Vessel is an attorney with Waller Lansden Dortch & Davis, LLP in Nashville, TN where she counsels healthcare and other clients on antitrust law compliance issues and pre- and post-transaction conduct. She may be reached at beth.vessel@wallerlaw.com.

Ashleigh VanLandingham is an attorney with Waller Lansden Dortch & Davis, LLP in Nashville, TN where she represents healthcare providers in strategic acquisitions and joint ventures as well as divestitures. She may be reached at ashleigh.vanlandingham@wallerlaw.com.




cdn.ca9.uscourts.gov/datastore/opinions/2015/02/10/14-35173.pdf, pp. 25, 28-29. In fact, the court expressed skepticism regarding whether efficiencies defenses should be permitted at all, while upholding the lower court’s determination that the claimed efficiencies were not merger specific and that the defendants had not demonstrated that any resulting efficiencies would have a positive impact on competition. The lower court had determined that there was no evidence to support the theory that an additional core group of employed primary care physicians was necessary to transition to integrated care or to make effective use of an electronic health records system.


Enforcement against hospitals is largely a result of the high volume of mergers and acquisitions in the hospital industry. State and federal agencies are also active in the large health plan mergers (such as Aetna/Humana and Anthem/Cigna). There have additionally been challenges to smaller physician transactions, such as a settled FTC administrative action against Keystone Orthopedics Specialists in Berks County, Pennsylvania, in which a merger of six physician groups resulted in a 76% market share in the orthopedics service market and increased prices. See https://www.ftc.gov/enforcement/cases-proceedings/141-0025/keystone-orthopaedic-specialists-llc-orthopaedic-associates.




Per the press release, “The FTC may not immediately pursue an action in federal court because the merging hospitals are still awaiting approvals from the West Virginia Health Care Authority and the Catholic Church before they can close the transaction, which may take months.”




See case timeline at https://www.ftc.gov/enforcement/cases-proceedings/141-0191/penn-state-hershey-medical-centerpinnaclehealth-system.




See case timeline at https://www.ftc.gov/enforcement/cases-proceedings/141-0231/advocate-health-care-network-advocate-health-hospitals.




https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-tennessee-department-health-regarding-implementation-laws-relative-cooperative/151015tennesseedoh.pdf; https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-virginia-department-health-regarding-virginias-rules-regulations-governing/151015virginiadoh.pdf.  


See https://www.ftc.gov/news-events/press-releases/2015/10/comments-submitted-virginia-tennessee-health-departments-ftc.


See, for example, https://www.ftc.gov/enforcement/cases-proceedings/111-0067/phoebe-putney-health-system-inc.


https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-center-health-care-policy-resource-development-office-primary-care-health-systems/150422newyorkhealth.pdf. The DSRIP Program is the main mechanism by which New York State is implementing the Medicaid Redesign Team (MRT) Waiver Amendment, which allows the state to reinvest federal savings generated by MRT reforms. Performing Provider Systems are providers that form partnerships and collaborate in a DSRIP Project Plan. http://www.health.ny.gov/health_care/medicaid/redesign/dsrip/dsrip_faq/section2_faqs.htm.


See Letter from Michael O. Wise, FTC Acting Director, to North Dakota Assistant Attorney General (March 8, 1993); Federal Trade Commission Staff Cautions North Dakota that Health-Care Antitrust Exemption Bills Could Raise Costs and Reduce Quality to Consumers, FTC Press Release (March 10, 1993).


See, for example, https://www.ftc.gov/enforcement/cases-proceedings/111-0067/phoebe-putney-health-system-inc.; https://www.ftc.gov/enforcement/cases-proceedings/081-0137/north-carolina-board-dental-examiners-matter.


Currently 36 states and the District of Colombia have COPN/CON programs. http://mercatus.org/publication/40-years-certificate-need-laws-across-america.


Both the FTC and DOJ enforce federal antitrust laws. As explained by the FTC: “In some respects their authorities overlap, but in practice the two agencies complement each other. Over the years, the agencies have developed expertise in particular industries or markets. For example, the FTC devotes most of its resources to certain segments of the economy, including those where consumer spending is high [including] health care... Before opening an investigation, the agencies consult with one another to avoid duplicating efforts.” https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/enforcers.




Colon Health Ctrs. v. Hazel, No. 14-2283, at *25 (4th Cir. Jan. 21, 2016). Note, however, that the court’s decision was based on an analysis of the dormant Commerce Clause, rather than antitrust grounds.






42 U.S.C. § 18001 et seq. (2010).



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