FTC Drops WVA Hospital Merger Challenge

The Federal Trade Commission says consolidation of Cabell Huntington Hospital and St. Mary's Medical Center is anticompetitive, but shielded by state law from federal antitrust enforcement.

The Federal Trade Commission has decided to drop its challenge of the proposed merger between two Huntington, WVA hospitals, but not without a parting shot at a recently passed state law that made the "potentially anticompetitive" deal possible.

The commission last week dismissed its administrative complaint challenging the proposed merger between Cabell Huntington Hospital and St. Mary's Medical Center, two hospitals located three miles apart.

While maintaining that the merger would hurt competition in the region and result in higher healthcare costs, the commission dismissed the complaint on a 3-0 vote after West Virginia lawmakers passed a "cooperative agreement" with the hospitals, which was approved by the West Virginia Health Care Authority and the state's attorney general. 

"This case presents another example of healthcare providers attempting to use state legislation to shield potentially anticompetitive combinations from antitrust enforcement," the Commission wrote in a statement.

"The Commission believes that state cooperative agreement laws such as SB 597 are likely to harm communities through higher healthcare prices and lower healthcare quality."

Jay L. Levine, an anti-trust litigator with Washington, DC-based Porter Wright Morris & Arthur LLP, says the West Virginia case reflects the continuing fallout from the U.S. Supreme Court's February 2015 ruling in North Carolina State Board of Dental Examiners vs. Federal Trade Commission.

"If you harken back to some of the previous Supreme Court cases that dealt with state action doctrine, West Virginia passed legislation that empowered a government entity to oversee hospital consolidations and provided a mechanism to actively supervise it," says Levine, a disinterested observer.

"We can surmise the FTC thinks the state did a decent job to qualify for state action doctrine immunity to the antitrust laws, so the merger can't be challenged by federal antitrust authorities."

"They don't like when states try to do it. They don't think it's good for consumers or the healthcare industry and they made that displeasure well known, but nevertheless they have to face the reality that it would be an uphill battle to effectively challenge the merger," Levine says.

2 Steps Toward Immunity

To gain immunity, Levine says states have to do two things:

1. "Clearly articulate a state policy to displace competition. They usually do that through legislation."
2. "Provide a mechanism that the conduct is actively supervised by the state, the policy reason behind it being that to ensure that in fact what is being done is in compliance with the state desire to displace competition and nothing else."

The commission warned that its decision to drop the administrative complaint should not be interpreted as a retreat on antitrust enforcement in the healthcare sector.

"We will continue to vigorously investigate and, where appropriate, challenge anticompetitive mergers in the courts and, if necessary, through state cooperative agreement processes," the commission said. "Our decision to dismiss this complaint without prejudice does not necessarily mean that we will do the same in other cases in which a cooperative agreement is sought or approved."

Levine says it's hard to say if West Virginia is on the leading edge of a trend to sidestep federal antitrust regulations. "It really is a state-by-state issue," he says. "What is their political and economic philosophy? Do they want antitrust enforcement or do they want consolidations and cooperation?"

As a side note, the commission bristled at suggestions from West Virginia officials that the consolidation was needed because antitrust laws hinder care collaboration and coordination mandates under the Patient Protection and Affordable Care Act.

"This is fundamentally incorrect," the commission wrote. "The ACA did not repeal the antitrust laws, and it certainly does not condone mergers that substantially lessen competition."

"You can almost hear the frustration in these statements," Levine says. "Time and again the parties defend their actions arguing that the ACA, if it is not compelling their activity, at least promoting it, and that they can't be faulted for trying to comply with the goals of the ACA."

"The FTC continues to come back with the argument that the ACA does not mandate, compel, or recommend anticompetitive activity and that there are all sorts of collaborative associations that can be implemented that do not run afoul of the antitrust laws," he says.

"There is this ongoing battle. The mantra on either side is not going to change."