FTC seeks to determine if hospital monopolies help or harm patients

“There’s a story I like to tell about the importance of promoting understanding and common terminology,” said James Blumenstein, director of Vanderbilt’s Health Policy Center. A visiting jurist from Great Britain told him about an effort by his country to get a sense of the demographics of the courts. Questionnaires were sent to the chief judge in each district asking them to list members of the court broken down by sex.

One chief judge replied that two were broken down by age, three were broken down by alcohol, but none was broken down by sex.

The quip is a reminder that there are different ways to define an issue, none of which is entirely correct or entirely wrong.

For decades, the FTC has viewed state laws called COPAs, for Certificate of Public Advantage, as a way to circumvent the commission’s authority to assess whether the benefits of a hospital merger outweigh the disadvantages of pricing, access and quality that could come with monopolies.

Hospital mergers and acquisitions occur frequently. From January to April of this year, 17 deals closed, according to Becker’s Hospital Review. All went through FTC review, and some involved mega companies’ expansions, such as HCA Healthcare acquiring the health system in Asheville, North Carolina, and gaining a foothold into a new state.

What makes mergers under COPA laws different is that they involve two systems in the same place that compete against each other. This is what happened last year when Mountain States Health Alliance and Wellmont Health System formed Ballad Health.

Ballad has a geomonopoly covering a million people living in an area about the size of New Jersey. For people in Virginia’s coalfields and Tennessee’s Tri-Cities region, there is now no competing hospital nearby to turn to for care.

In exchange for such monopolies, states, through COPAs or cooperative agreements, can require conditions designed to hold down costs and open up access. Virginia and Tennessee are requiring Ballad to spend tens of millions of dollars on efforts to improve the health status in Central Appalachia, where people tend to be unhealthier and to die earlier than those living in most other regions in the country.

There are theories, anecdotes and rhetoric, but little empirical research that examines whether the benefits of COPAs outweigh the disadvantages, or whether patients pay more and have less access to quality care when competition ceases.

Shortage of empirical data

The FTC is seeking to encourage that research through a COPA Assessment Project. Earlier this month, it held a day-long workshop for scholars to present research on now-defunct COPAs in Montana, Georgia and North Carolina and an ongoing one in South Carolina, and to take a look at how Tennessee and Virginia regulate Ballad and its impact so far on care and access in the region.

“While we understand and are sensitive to the challenges faced by providers in today’s complex health care ecosystem, we generally think antitrust law is flexible enough to let pro-competitive deals proceed, while targeting only those transactions that would truly harm consumers,” FTC Chairman Joseph Simons said. “Having said that, we also believe that the FTC’s enforcement and policy decisions must be grounded in sound economics and rigorous empirical analysis.”

Simons said there is also a lack of understanding as to what happens in a market when a COPA expires and the state stops regulating a monopoly.

In Montana, a COPA kept prices in Great Falls in line with comparable hospitals throughout the state and the Great Plains, but once it went away, inpatient costs rose more than 20%, said Christopher Garmon of the Bloch School of Management, University of Missouri Kansas City.

But, Garmon said, his study of Benefis Health System was limited by available data. He could look only at prices for certain inpatient services, and he could not assess quality or access.

Other presenters said they faced similar challenges in assessing COPA mergers in Columbia, South Carolina; Albany, Georgia; and Asheville. Once North Carolina abolished its COPA law, Asheville’s nonprofit Mission Health was sold in January to HCA Healthcare for $1.5 billion.

The studies compared prices charged by a monopoly and by its peers for particular procedures. The researchers did not look at overall patient spending or whether the monopoly directed more outpatient services into hospital buildings rather than clinics so it could charge higher fees.

And as Benefis CEO John Goodnow pointed out, Medicare and Medicaid, the government insurers, pay a set amount regardless of charges; fewer than a quarter of his system’s patients have commercial insurance that also negotiates for discounts.

The one study that sought to look at quality of care was again limited to inpatients, and to the types of factors Medicare measures, including how satisfied patients are with their care.

The studies did not look at whether the monopoly was able to offer additional services, or how the shift in health care to outpatient services affected competition and pricing.