Hospital Mergers and Public Accountability: Tennessee and Virginia Employ a Certificate of Public Advantage

49 Pages Posted: 16 Oct 2018 Last revised: 22 Nov 2018

See all articles by Erin C. Fuse Brown

Erin C. Fuse Brown

Georgia State University College of Law

Date Written: September 1, 2018

Abstract

Rapid health care consolidation has led to rising health care prices, diminished access to care, and reduced incentives for quality improvement. States have a variety of tools to address these adverse consequences of the loss of health care competition, ranging from state antitrust enforcement to global budgets or provider rate-regulation. One of the tools is a “certificate of public advantage” (COPA) or cooperative agreement under which the state approves a health care merger and shields it from antitrust enforcement in exchange for state oversight and supervision of the merged entities’ conduct. COPAs are controversial. The Federal Trade Commission and economists vehemently oppose COPAs, citing evidence that health care consolidation leads to higher prices and does not yield efficiencies, savings, or improved quality. The risks of COPAs are that they create, in essence, a state-sanctioned monopoly that could significantly raise prices, reduce consumer choice and access, and disinvest in essential services that may be less profitable but are critical for population health. Nevertheless, particularly in rural areas, health care providers seek to consolidate to weather mounting financial challenges. In response, states are exploring COPAs as a tool to exercise oversight over the merging parties’ health care prices, secure commitments for investments in population health, promote beneficial health care integration, and maintain access to rural health care providers.

This report, published by the Milbank Memorial Fund, describes the twin COPAs approved by Tennessee and Virginia in 2017 to allow health systems, Wellmont Health System and Mountain States Health Alliance, to merge to form Ballad Health System, a combined entity that holds a near-monopoly in southwest Virginia and northeast Tennessee. This case study highlights the unique features of the Ballad Health COPA, involving two states’ COPA laws, and describes the legal authority, factors and commitments secured for approval, and the states’ resources and coordination for ongoing supervision. It remains to be seen whether the states can implement the COPAs with sufficient rigor and oversight to ensure the benefits of COPAs outweigh their risks. COPAs are a risky policy solution because they permit health care mergers that would not pass antitrust scrutiny and may result in untenable price increases and other adverse effects. On the other hand, COPAs may offer potential benefits in terms of population health and access particularly for struggling rural communities. Stringent, well-resourced, and long-term state oversight is key to avoiding the risks of monopoly and enforcing the commitments to population health and cost control. Whether states can prevent the adverse outcomes and reap the potential benefits under a COPA remains an open question, but Tennessee and Virginia are poised to try.

Keywords: health care, health law, health care prices, health care costs, COPA, certificate of public advantage

JEL Classification: I11, I18, I19, K21, K32

Suggested Citation

Fuse Brown, Erin C., Hospital Mergers and Public Accountability: Tennessee and Virginia Employ a Certificate of Public Advantage (September 1, 2018). Milbank Memorial Fund Report, Sept. 2018, Georgia State University College of Law, Legal Studies Research Paper No. 2018-30, Available at SSRN: https://ssrn.com/abstract=3255765

Erin C. Fuse Brown (Contact Author)

Georgia State University College of Law ( email )

P.O. Box 4037
Atlanta, GA 30302-4037
United States

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