Why antitrust laws aren’t stopping some hospital mergers

One job of the US Federal Trade Commission (FTC) is to prevent mergers that create hospital monopolies, but a type of state law has allowed hospitals to sidestep federal regulation and avoid competition. In a new policy paper, the FTC outlines the negative impact of these laws and argues for their repeal.

What’s a COPA?

When hospitals or systems want to consolidate but are worried about running afoul of federal antitrust law, they can apply for a Certificate of Public Advantage (COPA). With COPAs, states can permit hospital mergers that would not be allowed under federal antitrust law, as long as the hospital agrees to state oversight of their prices, quality, and other such metrics. Nearly half of US states have or used to have COPA laws.

At first this sounds like a win-win. Hospitals argue that allowing mergers will improve efficiency through economies of scale and keep their finances stable. At the same time, states can prevent negative impacts of consolidation through the regulations outlined in their COPA agreement.

“COPAs can be difficult to implement and monitor over time, and are often unsuccessful in mitigating merger-related price and quality harms.”

US Federal Trade Commission

Here’s the problem: It’s a lot more work for states to regulate hospitals forever than to prevent a merger from happening in the first place. COPAs are only as strong as the power of the state regulator behind them. The amount of oversight it takes to hold hospital monopolies accountable is burdensome for state health departments, and the political pressure for states to remove regulations is strong.

After a while, many states repeal their COPAs, leaving the hospital monopoly intact with no regulations in place. When this happens, hospitals take advantage. A new study in the Journal of Law and Economics found that when states repealed their COPAs, hospitals increased prices up to 51%.

For example, hospital system MaineHealth acquired Southern Maine Medical Center under Maine’s COPA system. The terms of the COPA left something to be desired — only one of the hospitals in the system was put under price and margin regulations, and the agreement expired automatically after six years. After the expiration, prices at Southern Maine Medical Center increased by 50% and quality of care declined, the FTC reports.

The impact of consolidation

The FTC report is the latest in a large body of research showing concerning results of hospital consolidation. Researchers have warned that mergers often lead to higher prices for health care services, because larger health systems can command greater market share. According to the Health Care Pricing Project, prices at hospitals that have a regional monopoly are 12 percent higher overall, compared to hospitals that have four or more “rivals.”

The impact of mergers on hospital employees is also important to consider. At UPMC, a nonprofit health system that has an enormous amount of market share in the Pittsburgh area, wage inequity has become extreme. “If the people who work in the kitchen at UPMC started working during the Civil War, they would still have to work another century to make as much as the CEO made in a year,” said former SEIU Executive Vice President Lisa Frank, at an event hosted by Open Markets Institute.

When Covid-19 hit, struggling hospitals became even more in danger of closing, while federal Covid-19 relief funding made many rich hospitals richer. These two forces have made hospital consolidation more prevalent than ever. We need strong regulation in the face of this merger-happy hospital market, to prevent mergers that increase prices without improving health. That means closing the COPA loophole and letting the FTC do its job.