BY Kianna L. Sitarski, Esq. and Michael R. Alexander, Esq., Brown & Fortunato, P.C.
The healthcare industry is indisputably rife with economic, administrative, and regulatory hurdles that often have the unintended consequence of limiting healthcare 
access to patients, especially those in rural communities. Effective September 1, 2019, in recognition of one regulatory hurdle faced by hospitals, namely federal and state antitrust laws, Texas lawmakers passed House Bill (H.B. 3301) implementing a limited grant of antitrust immunity, known as a Certificate of Public Advantage or “COPA”, for qualifying hospital mergers for the purpose of “maintaining or improving the quality, efficiency, and accessibility of health care services offered to the public…” (the “COPA Statute”). Though studies indicate that antitrust enforcement against proposed hospital mergers has been lax in prior years, regulators seem to have a renewed interest in scrutinizing hospital mergers that could increase costs for consumers. As such, the COPA Statute may be invoked in increased frequency to combat this increased enforcement, and healthcare administrators should be aware of its potential application, and limitations.
When two or more qualifying hospitals contemplate moving forward with a qualifying transaction (meaning “consolidation by merger or other acquisition or transfer of assets by which ownership or control over substantially all of the stock, assets, or activities of one or more previously licensed and operating hospitals is placed under the control of another licensed hospital or hospitals or another entity that controls the hospitals”), the hospitals may apply for a COPA. Importantly, under Section 314A.002 of the Texas Health and Safety Code, the COPA application is only available if the hospitals are both located within a Texas county that (i) contains two or more hospitals and (ii) “as a population of: less than 100,000 and is not adjacent to a county with a population of 250,000 or more; or more than 100,000 and less than 150,000 and is not adjacent to a county with a population of 100,000 or more.” The Texas Health and Human Services Commission (“HHSC”), the agency designated to receive, process, and issue approvals of COPA applications (with the input of the Texas Attorney General) has determined that such counties include: Angelina, Bowie, Cherokee, Colorado, Taylor, Tom Green, Wichita, and Wood counties.
The application is straightforward, but requires the parties to submit to HHSC a $75,000 application fee and documentation, including but not limited to, (i) the transaction documents, including the letter of intent and a copy of the proposed merger agreement; (ii) a payor report outlining several data points for Medicaid, Medicare, and all other payors; and (iii) an analysis of why the proposed merger would benefit the public “by maintaining or improving the quality, efficiency, and accessibility of health care services offered to the public” and a statement describing the hospitals’ position on “whether the likely benefits resulting from the proposed merger agreement outweigh any disadvantages attributable to a reduction in competition that may result from the proposed merger.” These application materials must be concurrently provided to the Texas Attorney at the time the application is submitted to HHSC.
Within 120 days of the hospitals’ filing of the COPA application, HHSC must issue a decision to the hospitals, in writing, including an explanation specifying the basis for the decision. However, the same deadline does not apply to the Attorney General. Rather, the Attorney General is only required to review the COPA application “as soon as practicable, taking into consideration the [120-day deadline prescribed to HHSC]”. Further, the Attorney General’s review is discretionary, and the Attorney General may choose to forego formally advising HHSC. But, to the extent that the Attorney General does speak to the COPA application, it is authorized only to recommend an approval or denial. In either case, the recommendation must state the basis and reason for the recommendation, and outline the Attorney General’s decision as to whether “(i) the proposed merger agreement would likely benefit the public by maintaining or improving the quality, efficiency, and accessibility of health care services offered to the public; and (ii) the likely benefits resulting from the proposed merger agreement outweigh any disadvantages attributable to a reduction in competition that may result from the proposed merger.”
Section 314A.056 of the Texas Health and Safety Code makes it clear that HHSC must consider the totality of the circumstances, but is authorized to consider specific factors, such as whether the proposed merger would “[preserve] sufficient hospitals within a geographic area to ensure public access to acute care” or whether the proposed merger may result in “any reduction in competition among physicians, allied health professionals, other health care providers, or other persons providing goods or services to, or in competition with, hospitals.” The enumeration of these considerations makes it clear that the Texas legislature not only considered the impact that hospital mergers may have on public accessibility to health, but it also considered the impact such transactions could have on the labor in the healthcare market.
Though HHSS is required to be thorough in its pre-merger analysis in granting a COPA, its regulatory responsibility does not terminate upon its approval of a COPA application. Rather, HHSC is required to undertake certain supervisory activities that are aimed at ensuring that the impact of the hospital merger actually accomplishes the purposes of the COPA. Specifically, HHSC is required to conduct a rate review on three occasions (i) before the merger is finalized; (ii) each time the merged hospital proposes any change in rates for inpatient or outpatient services; and (iii) each time the merged hospitals renegotiate their reimbursement agreements with third party payors. Additionally, HHSC reviews annual reports from the merged hospitals, which must include data and explanations demonstrating the merged hospitals’ commitment to furthering the purpose of the COPA.
In summary, a COPA is a powerful tool that hospital systems may utilize to provide healthcare the rural communities without the risk of antitrust liability. However, the immunity from antitrust liability granted by a COPA is not absolute. Noncompliance with the oversight activities of HHSC aimed at ensuring public benefit, including the efficiency and availability of healthcare, could potentially lead to a termination of the COPA, or antitrust liability post-merger. As in all aspects of the healthcare industry, should hospitals pursue a COPA for a proposed transaction, they must keep regulatory compliance and patient care as their top priorities.