FTC Releases Paper Opposing Certificates of Public Advantage for Health Care Transactions

On August 15, 2022, the Federal Trade Commission (FTC)—in a bipartisan, 5-0 vote—issued a policy paper detailing its concerns with Certificates of Public Advantage (COPAs). The FTC identified six states that have approved hospital mergers pursuant to active COPAs (Maine, South Carolina, Tennessee, Texas, Virginia, and West Virginia) and three states that approved hospital mergers pursuant to now repealed COPAs (Minnesota, Montana, and North Carolina). Consistent with its past positions, the FTC expressed skepticism over the purported benefits of COPAs and signaled it may be more aggressive in engaging with state lawmakers to discourage the passage and approval of future COPAs.

COPAs arise from state laws that permit health care providers to enter into cooperative arrangements—including but not limited to mergers—that might otherwise be subject to antitrust review or challenge. A state may approve a COPA after it determines the proposed collaboration likely has benefits that outweigh any disadvantages. Once approved, providers can collaborate free from federal antitrust scrutiny under the “state action doctrine.” The state action doctrine confers antitrust immunity on private actors when two conditions are met: the state has articulated a clear intent to displace competition in favor of regulation, and the state provides active supervision of this clearly articulated policy. To satisfy this active supervision requirement, COPAs typically contain certain terms and conditions, such as price controls, rate regulations, mechanisms for sharing cost savings and efficiencies, public reporting or quality metrics, or other contractual commitments.

The FTC policy paper served as the culmination of a policy project the FTC announced in 2017 to assess the impacts of COPAs on prices, quality, access, and innovation for health services. As part of the project, the FTC researched past COPAs, conducted ongoing studies of recently approved COPAs, sought public comments regarding benefits or harms that have resulted from COPAs or other regulatory approaches to health care prices and quality, and hosted a public workshop in 2019 examining in more detail the asserted efficiencies and benefits.

Providers may decide to apply for a COPA when they seek to realize certain benefits and efficiencies from a collaboration. For example, a collaboration may help reduce unnecessary duplication of resources and control certain costs. The resulting efficiencies from the collaboration may enable providers to participate in new health care payment and delivery models. The FTC policy paper, however, expressed doubt that those efficiencies and benefits would be achieved.

The FTC’s skepticism is not surprising. FTC staff have previously issued advocacy raising concerns about COPAs and at times have recommended that states deny COPA applications. That said, the policy paper acknowledged there may be circumstances where a regulatory approach that limits competition may be appropriate to implement important public policy goals. The FTC maintained, however, that it views the current evidence as not supporting such an approach.

If you are considering applying for a COPA, there are factors to consider that may help mitigate potential negative attention from the FTC. These factors include evidence that facilities will not be closed, particularly in rural or underserved areas, access to key services will be maintained if not improved, any price increases will be consistent with those of other competitive markets, and quality metrics and patient health outcomes will be improved. Proof of post-collaboration plans verifying cost savings through integration and operations will be important. In addition, providers contemplating a COPA application should consider impacts on local labor.

The FTC invited state lawmakers to engage with it in addressing problems with consolidation and avoiding the use of COPAs. We expect the FTC to continue its advocacy and perhaps be even more active in trying to lobby states to not pass new COPAs or approve new applications under existing COPAs.

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