FTC Halts Action Questioning W. Va. Hospital Merger

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By Mary Anne Pazanowski

March 29 — The Federal Trade Commission has temporarily halted an administrative proceeding involving the merger of two West Virginia hospitals.

In an agency order, the FTC March 24 said it would withdraw the matter from adjudication for 30 days while it studies whether certificate-of-public-advantage (COPA) legislation recently signed by the state's governor renders the transaction immune from federal antitrust law.

The agency Nov. 5, 2015, issued an administrative complaint alleging that an agreement among Cabell Huntington Hospital Inc., Pallottine Health Services, Inc. and St. Mary’s Medical Center Inc. under which Cabell would acquire all the assets of St. Mary’s, violates Section 5 of the FTC Act, 15 U.S.C. § 45, and, if the acquisition were consummated, would violate Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the FTC Act.

The administrative hearing was scheduled to begin April 5.

COPA Legislation Enacted

The West Virginia Legislature March 12 adopted a COPA law, and Gov. Earl Ray Tomblin (D) signed the bill March 18. This mechanism permits health-care entities to submit a proposed deal to a state authority for approval. The authority may impose conditions on the transaction and must supervise the resulting entity .

COPA laws are intended to put mergers beyond the reach of federal antitrust regulators by imbuing them with state-action immunity. To qualify under the state-action immunity doctrine, however, the legislation must clearly articulate and affirmatively express an intention to displace competition with regulation, and the transaction and resulting entity must be subject to active supervision by the state.

In the past, once two hospitals merged under a COPA, the FTC closed its investigation, basically saying it couldn't do much at that point because an administrative law judge would have no authority to block the deal, Douglas C. Ross, of Davis Wright Tremaine in Seattle, previously told Bloomberg BNA. This time, he said, the FTC may be less inclined to walk away.

Lisl Dunlop, a partner at Manatt, Phelps & Phillips in New York who regularly counsels health-care companies on antitrust matters, told Bloomberg BNA March 29 that although it's hard to tell what the FTC will do, the agency has been very active lately in criticizing arrangements like the West Virginia legislation. She cited, by way of example, a “very strongly worded comment letter” the FTC sent to the state Legislature in response to an inquiry about whether the COPA law was good idea.

Dunlop said she expects the FTC to “carefully consider its options” and to take a very close look at whether West Virginia's new COPA law displaces the federal antitrust law with respect to the proposed merger. The issue is “ripe,” she said.

FTC Order

On March 17, the parties filed a joint motion to withdraw this matter from adjudication for 30 days, or alternatively to delay the evidentiary hearing until at least April 26. The parties said West Virginia's COPA law “raises significant new issues about whether the Transaction may become immune from federal antitrust law” and “potentially creates a defense” for the hospitals that didn't exist when complaint counsel decided to bring the action.

Withdrawing the matter from adjudication would allow the FTC to review the law and to hear arguments from both complaint counsel and the hospitals regarding the law's relevance to these proceedings, the order said.

The FTC said it was “committed to moving forward as expeditiously as possible with adjudicative proceedings,” but determined that withdrawing the case for a short time, given the hospitals' agreement to refrain from consummating the proposed deal for that 30-day period, would allow it to evaluate the law's impact without any adverse effects on competition or consumer interests.

The proceedings before the administrative law judge have been stayed until April 25.

Dunlop said attorneys are “very interested” in this case and the issues it presents. Across the country, states are looking at how they can balance their health-care policy goals with antitrust concerns. “It's a difficult choice for states to make,” Dunlop said.

She noted that the West Virginia attorney general, in commenting on the proposed merger of Cabell and St. Mary's, said the state's goal was to ensure that underserved populations continue to have access to health care. If the merger were blocked by the federal antitrust laws, that goal might not be met, she said.

Julie Brill, one of the FTC's commissioners, in October 2015 discussed some of those policy concerns in a dissent from an agency comment provided to a committee studying Virginia's certificate-of-public-need law, Dunlop said .

To contact the reporter on this story: Mary Anne Pazanowski in Washington at mpazanowski@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

For More Information

The order is at http://src.bna.com/dF3. The parties' March 17 motion is at http://src.bna.com/dF8.