The FTC may appeal the decision, and corporate counsel at healthcare providers should stay tuned for further updates under this changing enforcement landscape.

On September 27, 2023, the United States District Court for the Eastern District of Louisiana concluded that the “state action doctrine” exempts a transaction between hospitals from the federal antitrust laws given the issuance of a certificate of public advantage (COPA) by the Louisiana Department of Justice (LADOJ).

Takeaways

• A federal court has concluded that Louisiana’s COPA law exempts a hospital merger from federal antitrust law, including the Hart-Scott-Rodino (HSR) Antitrust Improvements Act.
• Nineteen states currently have COPA laws, which could impact the federal antitrust agencies’ ability to enforce the federal antitrust laws in those states.
• Several other states have enacted state pre-merger notification filing requirements that provide states with the ability to review healthcare transactions.
• The FTC may appeal the decision, and corporate counsel at healthcare providers should stay tuned for further updates under this changing enforcement landscape.

What Was the Transaction at Issue?

This case involves a consummated acquisition by Louisiana Children’s Medical Center, dba LCMC Health, of three hospitals from HCA Healthcare Inc. pursuant to a COPA issued by LADOJ. The hospitals—Tulane Medical Center, Tulane Lakeside and Lakeview Regional Medical Center—are all located in the greater New Orleans area. After receiving a COPA from LADOJ on December 28, 2022, the parties closed the transaction on January 1, 2023.

What Is COPA?

Louisiana’s COPA statute provides LADOJ with “direct supervision and control over the implementation of cooperative agreements, mergers, joint ventures, and consolidations among health care facilities for which certificates of public advantage are granted.”[1] Under the statute, “[i]t is the intent of the legislature that supervision and control over [such transactions]… have the effect of granting the parties to [such transactions] state action immunity for actions that might otherwise be considered to be in violation of state antitrust laws, federal antitrust laws, or both.”[2] After an investigation, a notice and comment period, a comment review period and a public hearing, LADOJ approved the acquisition and granted a COPA on December 28, 2022, and the parties consummated the transaction on January 1, 2023.

What Is the HSR Act?

The HSR Act requires parties to transactions that meet certain thresholds to file a pre-merger notification and report form and wait 30 days before consummating their transaction.[3] Parties that consummate a reportable transaction without completing an HSR filing and/or failing to observe the statutory waiting period are subject to civil penalties of $50,120 per day. In this case, the parties closed the transaction without an HSR filing and observation of the statutory waiting period.

What Did the Court Decide?

The Federal Trade Commission (FTC) sued LCMC Health and HCA Healthcare in the U.S. District Court for the District of Columbia seeking an order enjoining the transaction because of the parties’ alleged failure to comply with the HSR Act. The case was transferred to the Eastern District of Louisiana. The parties—joined by the state of Louisiana as an intervening party—opposed the FTC on grounds that the transaction was exempt from the HSR Act under the state action doctrine.

The state action doctrine provides that certain conduct is exempt from the federal antitrust laws. In addition to conduct by a state, the state action doctrine applies to the anti-competitive acts of private parties only where “the challenged restraint” is “clearly articulated and affirmatively expressed as state policy” and where that policy is “actively supervised by the state.”[4] The argument by the parties and the state of Louisiana was that the transaction pursuant to COPA is exempt from the federal antitrust laws under the state action doctrine. The FTC did not address that argument. Instead, it argued that such a determination was premature because the HSR Act is not among “the federal antitrust laws” from which private parties acting pursuant to the state action doctrine are exempt.

The court concluded that Louisiana’s COPA statute satisfies the test articulated by the Supreme Court of the United States. Therefore, it held that the transaction is exempt from the federal antitrust laws, including the HSR Act. The appeal period has not yet run, and an appeal of this decision is possible.

What Are the Implications?

Nineteen states currently have COPA laws: Florida, Idaho, Indiana, Kansas, Louisiana, Maine, Mississippi, Nebraska, New York, Ohio, Oregon, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin and Wyoming; and North Carolina is considering legislation that would exempt the University of North Carolina’s health system from federal and state antitrust laws. The FTC has warned North Carolina lawmakers not to pass that legislation, and last year issued a policy paper urging state lawmakers generally to avoid using COPAs to shield otherwise anti-competitive hospital mergers. According to the FTC, “the weight of the empirical evidence indicates that in the longer run, hospital mergers shielded with COPAs often lead to higher prices and reduced quality form unconstrained provider market power.”

Several other states, including California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, Nevada, New York, Oregon and Washington, have enacted state pre-merger notification and waiting period requirements for healthcare transactions. The filing requirements, notification thresholds, waiting periods and standards of review are not uniform across those states; however, they each provide the respective state with the ability to review healthcare transactions.

This case comes on the heels of the FTC’s scrutiny of an alleged scheme to consolidate anesthesia practices in Texas and to force other independent anesthesia groups into price-setting arrangements in violation of federal antitrust laws. The FTC is clearly focused on transactions involving healthcare providers, and parties to such transactions should pay close attention to this evolving enforcement landscape.

For More Information

If you have any questions about this Alert, please contact Sean P. McConnell, Andrew John (AJ) Rudowitz, any of the attorneys in our Antitrust and Competition Group or the attorney in the firm with whom you are regularly in contact.

Notes

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.