On September 19, 2017, the Tennessee Department of Health (“TDOH”) granted the request for a Certificate of Public Advantage (“COPA”) from Wellmont Health System and Mountain States Health Alliance.  This approval paves the way for the two entities to form a single corporate entity called Ballad Health.  According to the TDOH, both health systems “agreed through the legislative process to meet a clear and convincing standard that their merger would create a public benefit to the residents of Northeast Tennessee that would outweigh any downsides of a monopoly of services.”  Notably, the Department observed that a Terms of Certification document accompanying the approval “includes how active supervision by the state of the new entity will look.”  This fact is important because the Federal Trade Commission (“FTC”), which is not a fan of COPA regulations, has made clear that it will closely analyze and challenge defenses based on asserted state action immunity where the state fails to provide adequate active supervision.

The federal antitrust laws do not restrict the sovereign capacity of the states to regulate their economies. Under the state action immunity doctrine, states can immunize certain conduct from antitrust liability.  Certain actors delegated authority by the state can be immunized when their actions are taken pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition. Also state-authorized private action may be shielded from the antitrust laws under this doctrine if the conduct occurs pursuant to a “clearly articulated and affirmatively expressed” state policy and the conduct is “actively supervised” by the state.

In recent years, several states have begun to pass COPA statutes.  In the wake of aggressive antitrust enforcement in the health care industry, providers have increasingly used these regulations to shield their transactions from federal antitrust challenge.  However, the FTC has expressed significant concerns regarding COPA regulations and, as we previously reported, has specifically gone on record opposing COPA regulations in Tennessee, Virginia, and New York.  According to the FTC, COPA regulations are unnecessary for providers to engage in procompetitive collaborative activities.  In opposing a COPA application by providers in New York, the Commission stated that “because procompetitive health care collaborations already are permissible under the antitrust laws, the main effect of the COPA regulations is to immunize conduct that would not generate efficiencies and therefore would not pass muster under the antitrust laws.”  They believe that COPAs are therefore likely to “lead to increased health care costs and decreased access to health care services.”

In this matter, the approval by Tennessee is just the first step in the COPA process.  Because the proposed transaction also impacts consumers residing in Southwest Virginia, the COPA request remains under consideration in Virginia.  The FTC will undoubtedly keep a close eye on the development of COPA regulations and closely analyze claims of antitrust immunity to ensure proposed transactions between competitors are adequately shielded from federal antitrust liability through active state supervision.