States’ role in Ballad drama winding down: FTC waiting in the wings
Photo above: Alan Levine, Mountain States Health Alliance CEO and Bart Hove, Wellmont Health System CEO File Photo
By Jeff Keeling
The Tennessee Department of Health (TDH) is in the process of a thought experiment as it stares down a deadline to rule on Mountain States Health Alliance and Wellmont Health System’s application for merger approval. It’s an experiment that has been keeping lawyers plenty busy up to the end – unless, of course, this sin’t the end and the battle continues after TDH’s ruling, due by Jan. 12.
On one hand is what the systems, and many local merger proponents, hope is an irresistible force: their arguments that a well-regulated hospital monopoly can yield benefits that outweigh any disadvantages likely to occur due to reduced competition – that they can “become better together,” to borrow a phrase from their public relations campaign. On the other hand is the contention that the Federal Trade Commission (FTC) and an assortment of other interested parties have consistently put forth – that any anti-competitive situation of this magnitude, no matter how well-intentioned or comprehensively regulated, is incapable of adequately replacing what they say are the benefits to consumers only competition can provide.
In the middle of these two poles, TDH Commissioner Dr. John Dreyzehner, his team, representatives of the Tennessee Attorney General’s office and a cadre of consultants must make a decision with implications that could reverberate beyond the greater Tri-Cities region. If TDH grants a Certificate of Public Advantage (COPA) allowing the systems to enter into and be governed by a “cooperative agreement” – and if Virginia follows suit – the doctrine of “state action immunity” as it relates to hospital mergers would take a major step forward.
Because they immunize merging hospital systems from standard federal and state antitrust laws, COPA laws have the potential to significantly erode the FTC’s ability to challenge mergers. If the MSHA-Wellmont COPA is approved, it would be larger and more complex than the several COPAs that have preceded it. More and larger dominoes could follow.
And so the FTC and others have beaten their drum as the months have passed. Even up to the Christmas season, as hospital system leaders almost certainly have negotiated with TDH counterparts to fine-tune any possible COPA and TDH has also met with the FTC, hospital system attorneys have focused on countering a late wave of opposing arguments.
New wave of written opposition, old theme
The systems’ familiar bogeyman, the FTC, was not alone in expressing written opposition to the COPA application around the time of the final public hearing on the matter, held Nov. 21 in Johnson City.
Within six days on either side of that hearing TDH, which has until mid-January to rule on whether to grant the COPA, received a 127-page “public comment” from the FTC, as well as separate letters urging TDH to deny the application. Additionally, a large local physicians group, Holston Medical Group, submitted a letter raising significant concerns about the merger, though not opposing it outright. The additional letters of opposition included:
• A 31-page assessment from a physician and public health professor from California, Dr. Kenneth Kizer, that had been commissioned by the FTC;
• A six-page, exhaustively footnoted letter signed by 46 academics writing in their capacity as “professors and academic economists with expertise in the subjects of antitrust, competition policy, and health economics”;
• A 33-page letter from Amerigroup, a health insurance and managed care provider whose parent company, Anthem, has actively opposed the application on the Virginia side of the border.
The themes in the letters resonated with the arguments that have been made by the FTC. Competition, even in this challenged market, is better able to contain cost, drive population health improvements than any anticompetitive situation could be, the letters and studies contended. The commitments made by the systems, whether related to pricing controls, investments in population health or research, or myriad other factors, would prove difficult to enforce, they added.
The Kizer and Amerigroup submissions were relatively predictable, but the letter signed by the academics had an air of mystery about it. The primary signatory, Leemore Dafny, is a Harvard business professor, just come over from Northwestern University’s Kellogg School of Management. Her Harvard faculty page notes that she researches “competitive interactions among payers and providers of healthcare services, and the intersection of industry and public policy.” It goes on to say her work has appeared in the American Economic Review and New England Journal of Medicine as well as the New York Times and Wall Street Journal. Dafny also served as deputy director for healthcare and antitrust in the FTC’s bureau of economics in 2012-13.
The academics’ letter argued that the COPA agreement isn’t sufficient to curb the systems’ exercise of market power that would arise from a merger; that little empirical evidence exists to show that integration among providers actually leads to cost savings – a major basis of the systems’ argument to merge; and that the systems’ proposed commitments will be difficult to enforce.
The systems respond
The letter drew a quick response from MSHA CEO Alan Levine, who told WJHL-TV that, “not one of those economists actually read the documents that we submitted to the state.”
While Levine was leading the administration’s public response to the economists’ letter along with those of Kizer and the FTC, system attorneys were drafting a comprehensive, point-by-point rebuttal to them – and to HMG’s more measured letter.
Over and against the opponents’ arguments, the 147-page response begins by summarizing the rationale behind Tennessee’s COPA law: that such agreements, “may foster further improvements in the quality of health care for Tennessee citizens, moderate increases in cost, improve access to needed services in rural areas… and enhance the likelihood that smaller hospitals in Tennessee will remain open to serve their communities.” Without the ability to create a regulated cooperative agreement immune from antitrust action, the systems argue, those challenges of cost, access and rural services are unlikely to be addressed. The response cites a collective operating loss of $19.5 million in the two systems’ rural hospitals that was absorbed by the larger facilities, and notes that stagnant population and decreasing inpatient admissions make sustaining that subsidy unlikely but for the merger.
Merger opponents, the response contends, are against the very concept of the Tennessee legislature’s “policy choice to institute a regulatory program that supplants competition with respect to health care transactions for Tennesseans. Repeatedly, staff’s disagreement with the concept of cooperative agreements permeates theirs and others’ commentary about the merits of the Parties’ Application. Staff’s policy opinions are not relevant.” (emphasis theirs)
The final act?
More than three years have passed since Wellmont leaders announced the system would look for “a strategic partner.” Nearly two-and-a-half years have gone by since a well-orchestrated campaign commenced to see MSHA become that partner, and it’s been 20 months since the two became officially betrothed.
While it’s within the realm of possibility that the FTC and others could stand down in the event of state and commonwealth approval – or that the systems could do likewise in the event of a denial – avenues exist for appeals. Tennessee’s law permits, “any intervenor aggrieved by a decision of DOH to grant or deny an application for a certificate of public advantage to appeal the Department’s decision…” An administrative judge or court of competent jurisdiction would be tasked with the decision of whether to issue a stay, and an unsuccessful appellant would be responsible for the appeal costs and attorney’s fees of the applicant.
For their part, Levine and Wellmont CEO Bart Hove told the Johnson City Press’ Zach Vance that if Tennessee denies the application, there’s a good chance the systems will someday be purchased by outside hospital operators. The FTC, meanwhile, hinted that it might press appeals beyond the initial state decision when it abandoned its administrative complaint against a state action immunity merger in West Virginia in July: “Our decision to dismiss the complaint without prejudice does not mean that we will do the same in other cases in which a cooperative agreement is sought or approved.”
So it seems mid-winter may not offer a final verdict on whether COPA proponents have created an irresistible force, unstoppable by any arguments including those put forth by the 46 economists in their Nov. 21 letter, when they wrote as part of their conclusion: “there is no longer any meaningful debate in the academic community about whether competition among hospitals and other healthcare service providers is beneficial to consumers.”
Links to the documents cited in this article can be found at tn.gov/health/article/certificate-of-public-advantage-how-to-comment.