State officials reviewing comments on merger rules


By Jeff Keeling

As Mountain States Health Alliance and Wellmont Health System work toward applying jointly for a “Certificate of Public Advantage” (COPA) that would allow them to merge, possible changes in the rules governing any such merger draw nearer.

With their initial goal for filing a merger application two months past, Mountain States and Wellmont now say they expect to file “in early 2016.” The systems filed a letter of intent with the Tennessee Department of Health Sept. 16, saying then they expected to officially apply for a COPA in early November. Similar language was in a letter the same date applying for a “cooperative agreement” in Virginia. A COPA is intended to regulate mergers such that any disadvantages to consumers associated with reduced competition are outweighed by advantages that wouldn’t be possible without a merger. Both systems got plenty to think about within a couple weeks of the systems’ filing of letters of intent Sept. 16.

Several interested parties – including the Federal Trade Commission (FTC), Highlands Physicians Inc. (HPI, one of the region’s largest independent physician groups), and insurance company representatives – had submitted comments in writing, and personally at a Sept. 25 rulemaking hearing in Nashville. Those comments related to the final rules that will govern the COPA in Tennessee, should one be granted. Written comments in their entirety, and video from the hearing, can be viewed at

Brant Kelch

Brant Kelch

Malaka Watson, assistant general counsel with the Department of Health’s Office of General Counsel, authored the emergency rules (which expire Jan. 10) and moderated the hearing, which included additional department representatives.

Brant Kelch, the CEO of Highland Physicians Inc. (HPI), told the panel the 1,500-member independent physicians association’s membership has “a diversity of opinions” about the proposed merger. HPI operates throughout the Wellmont-MSHA service area.

“The opinions range from ‘oh my God, the sky is falling’ to ‘this is really going to be good,’” Kelch said. “Probably most of the people are in the middle, and are concerned, and think that typically monopolies are not good unless you are one, but do believe that this could be a good one for the community and will be a good one if it’s done right.

“We know you’re committed to making sure this is not only done right initially but to continuing to monitor it and we totally support that.” Kelch said.

HPI’s written comments (HPI-COPA_Written_Comments) were more pointed, and made clear the group’s multiple areas of concern. HPI’s letter notes in its introduction that the proposed merger, “is of major concern to our members and other independent providers.” HPI added that due to the market concentration the merger would bring, independent providers “need meaningful protections to ensure this concentrated market power does not reduce competition or otherwise impede the innovation and entrepreneurship for which our members are known.” It provides 14 specific sets of “comments for consideration” tied to specific sections of the governing rules.

One such revolves around the emergency rules’ requirement that the hospital systems explain how their cooperative agreement will assure that hospitals, doctors groups and other providers not included in the merger retain their ability to operate independently and competitively post-merger. The section urges the final rules to include a request for explanations as to how this will be assured, and that the new system commit to not using Certificate of Need requirements to oppose development of new ambulatory facilities by still-independent entities. Such independent entities, HPI wrote, “are essential to providing access, quality of care and cost effectiveness called for in the Triple Aim, and we should ensure that the COPA be structured so as not to impede their development and operation.”

The section also warns of a “deep concern” that a merged system, without proper restraints built into the COPA, could use its employed physicians as essentially “loss leaders” to capture patient referrals to their inpatient facilities and ancillary services. And it expresses concern that a merged system could treat independent physicians unfairly, and should be regulated as to granting of medical staff privileges and access to operating and procedure rooms, among other things.

The FTC (FTC_Staff-COPA_Written_Comments)  warned of what it said was a high degree of anticompetitive risk when mergers occur in concentrated health care markets. The FTC announced its readiness to weigh in as the state considers the merger’s implications – and it emphasized its general concern, “about COPA programs and other antitrust exemptions.”

The commission noted that the Department of Health must consult with the state attorney general’s office as it evaluates potential reduction in competition, and that the AG’s office, “may consult with the FTC during this process.” The letter noted as well that, “in our experience, mergers between close competitors in highly concentrated health care provider markets are more likely to result in significant consumer harm than a merger in a less concentrated market.”

The agency touted its experience in analyzing the likely competitive effects of mergers. Against the “likely anticompetitive harm,” the letter read, the FTC assesses the, “efficiencies and procompetitive benefits likely to result from a merger.” Using information, documents and data from sources ranging from merging parties to health plans, third-party health care providers and employers, the FTC credits as counterbalances to anticompetitive effects only “merger-specific” efficiencies – those unlikely to be achieved without a merger. Those efficiencies must be “substantiated and non-speculative,” and also likely to be passed through to consumers. “This methodology is appropriate when applying a ‘clear and convincing’ evidentiary standard, as the Tennessee Department of Health is required to do,” the FTC wrote.

Ultimately, though, the federal government may not have much authority in the matter. The COPA law is designed to provide “state action immunity” from investigation and possible prosecution by the FTC, with its basis in the 1943 “Parker v Brown” Supreme Court decision. With respect to hospitals, it articulates a policy to displace competition, and it provides for active state supervision. The FTC’s three-page letter suggests such laws shouldn’t be necessary if health care mergers are truly “procompetitive” – having results that improve quality, reduce costs and improve patient access to services. “The FTC only seeks to prohibit under the antitrust laws those collaborations that are likely to undermine these goals and result in harm to consumers, including higher prices without any offsetting quality improvements,” the letter says. “Consequently, efforts to shield such conduct from antitrust enforcement are likely to harm Tennessee health care consumers, no matter how rigorous or well-intentioned the regulatory scheme may be.”

The FTC letter states its willingness, “to provide any expertise and information that we are authorized to share in connection with the review of COPA applications” by the department and the Tennessee AG’s office. It asks for similar information sharing in return, by the state to the FTC, and “urges” that, “these concepts of permissible sharing of information and expertise” between it and the state of Tennessee, “be incorporated in the promulgated rules.”

The proposed merger partners released the following joint statement Dec. 15:

“We are making great progress in the process to bring our two organizations together, and we expect this strong momentum to continue into 2016. After the first of the year, we expect to announce reaching several significant milestones: the signing of a definitive agreement, filing a public report that captures important commitments to positively impact health care in the region as a proposed combined system, and filing applications for a Certificate of Public Advantage (COPA) in Tennessee and a cooperative agreement in Virginia.

“We are excited about the future of health care in our region and look forward to sharing more in the new year.”



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