FTC Staff Comment to the Tennessee Department of Health Regarding the Implementation of Laws Relative to Cooperative Agreements and the Granting of Certificates of Public Advantage

UNITED STATES OF AMERICA
Federal Trade Commission
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Competition
Bureau of Economics
September 24, 2015
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Malaka Watson, Esq.
Tennessee Department of Health
710 James Robertson Parkway, 5th Floor
Nashville, Tennessee 37243
Email: malaka.watson@tn.gov
Re: Tennessee Rules Implementing Laws Relative to Cooperative Agreements
and the Granting of Certificates of Public Advantage Pursuant to the Hospital
Cooperation Act of 1993, T.C.A §§ 68-11-1301 through 68-11-1309, Proposed
Chapter 1200-38-01
Dear Ms. Watson:
The staff of the Federal Trade Commission’s (“FTC”) Office of Policy Planning,
Bureau of Competition, and Bureau of Economics1 respectfully submits this public
comment regarding Tennessee’s rules implementing laws relative to Cooperative
Agreements and the granting of Certificates of Public Advantage (“COPA”) as
promulgated by the Tennessee Department of Health, pursuant to the Hospital
Cooperation Act of 1993.2 FTC staff welcomes the opportunity to consult with the
Tennessee Attorney General’s Office and the Tennessee Department of Health during
their review of any COPA application to help ensure that any substantive determination
as to the potential effects of a COPA includes a rigorous competition analysis based on
well-accepted legal and economic principles.
According to the proposed rules under consideration, the Tennessee Department of
Health is authorized to issue a COPA for a Cooperative Agreement3 “if it determines the
Applicants have demonstrated by clear and convincing evidence that the likely benefits
resulting from the Cooperative Agreement outweigh any disadvantages attributable to a
reduction in competition that may result from the Cooperative Agreement.”4 The
statutory authority for these rules states that the Tennessee Department of Health shall
consult with the Tennessee Attorney General’s office regarding its evaluation of any
potential reduction in competition resulting from a Cooperative Agreement, and that the
Tennessee Attorney General’s office may consult with the FTC during this process.5
Among the benefits to be considered by the Tennessee Department of Health when
reviewing the COPA applications are:

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• 	enhancement in quality of hospital care;
• 	preservation of hospital facilities to ensure access to care;
• 	gains in cost-efficiency of hospital services provided;
• 	improvements in utilization of hospital resources and equipment;
• 	avoidance of duplication of hospital resources;
• 	improvement to population health; and
• 	access to hospital services for medically underserved populations.6
Among the disadvantages to be considered by the Tennessee Department of Health
when reviewing the COPA applications are:
• 	adverse impact on the ability of payers to negotiate appropriate payment and
service arrangements with providers;
• 	reduction in competition among providers;
• 	adverse impact on patients in the quality, availability, and price of health care
services; and
• 	availability of alternative arrangements that are less restrictive to competition and
achieve the same benefits or a more favorable balance of benefits over
disadvantages.7
FTC staff has significant expertise in evaluating proposed hospital and other health
care provider mergers, including assessing whether the potential benefits of a transaction
outweigh the potential anticompetitive harms. Indeed, many of the stated benefits and
disadvantages that the Tennessee Department of Health must consider are among those
the FTC assesses when evaluating mergers between hospitals and other health care
providers. Balancing these interests often involves a comprehensive and complex
analysis of various market factors, including: the merging parties’ overlapping services;
market shares and market concentration levels; the closeness of competition between the
merging parties; barriers to entry by other providers; economic analysis based on patient
discharge and pricing data; efficiencies; and other potential merger benefits, such as cost
savings or quality improvements. Our analysis usually considers information, documents,
and data from a wide variety of sources, including the merging parties, third-party health
care providers, health plans, and employers.
The FTC has substantial experience and devotes considerable resources to gather
sufficient data and conduct detailed analyses to fully understand the likely competitive
effects of all mergers, including proposed hospital combinations. 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. Settled antitrust jurisprudence establishes, for example, that a
proposed merger that would result in a monopoly or near-monopoly is likely to raise
serious antitrust concerns. Against the likely anticompetitive harm, we assess the
efficiencies and procompetitive benefits likely to result from a merger. The antitrust
agencies credit those efficiencies that are “merger-specific” (i.e., only likely to be
achieved as a result of the merger and unlikely to be achieved through another manner or
relationship having less anticompetitive effects), substantiated, and non-speculative.

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Consideration of whether credible efficiencies can offset a merger’s anticompetitive harm
depends not only on the magnitude of those efficiencies, but also on the extent to which
those efficiencies are likely to be passed through to consumers. Thus, the greater the
potential adverse competitive effect of a merger – as with a merger to monopoly or near-
monopoly – the greater must be the cognizable efficiencies, and the more they must be
passed through to customers to pass muster under the antitrust laws. This methodology is
appropriate when applying a “clear and convincing” evidentiary standard, as the
Tennessee Department of Health is required to do.
As the Tennessee Department of Health likely is aware, and as we wish to emphasize,
FTC staff has previously expressed concerns about COPA programs and other antitrust
exemptions. The FTC has consistently advocated that legislation purporting to grant
antitrust immunity is unnecessary to encourage procompetitive collaborations among
health care providers.8 Rather, the antitrust laws are consistent with the laudable public
policy goals of improving quality, reducing costs, and improving patient access for health
care 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.9 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.
Nevertheless, we recognize that the Tennessee Department of Health must
promulgate rules to implement Tennessee’s amended hospital cooperation legislation.
FTC staff is willing to provide any expertise and information that we are authorized to
share in connection with the review of COPA applications by the Tennessee Attorney
General’s office and the Tennessee Department of Health. Likewise, to the extent that the
Tennessee Attorney General’s office and the Tennessee Department of Health are able to
share, FTC staff investigations may benefit from receiving information and materials
submitted as part of any COPA application.10 Respectfully, we urge that these concepts
of permissible sharing of information and expertise between the Tennessee Department
of Health, the Tennessee Attorney General’s office, and the FTC be incorporated in the
promulgated rules.
Respectfully submitted,
Marina Lao, Director
Office of Policy Planning
Stephen Weissman, Deputy Director
Bureau of Competition
Francine Lafontaine, Director
Bureau of Economics

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1 These comments express the views of the FTC’s Office of Policy Planning, Bureau of Competition, and
Bureau of Economics. These comments do not necessarily represent the views of the Commission or of any
individual Commissioner. The Commission has, however, voted to authorize staff to submit these
comments. The Commission also authorized staff to provide oral comments at today’s meeting of the
Tennessee Department of Health. See http://share.tn.gov/sos/rules_filings/07-13-15.pdf.
2 See Tennessee Hospital Cooperation Act of 1993, as amended, Tenn. Code Ann. §§ 68-11-1301 – 1309
(2015); Tennessee Proposed Rules, Chapter 1200-38-01, available at
http://share.tn.gov/sos/rules_filings/07-13-15.pdf.
3 Tennessee Proposed Rules, Chapter 1200-38-01-01 (8) (“‘Cooperative Agreement’ means an agreement
among two (2) or more hospitals for the consolidation by merger or other combination of assets, offering,
provision, operation, planning, funding, pricing, contracting, utilization review or management of health
services or for the sharing, allocation or referral of patients, personnel, instructional programs, support
services and facilities or medical, diagnostic or laboratory facilities or procedures or other services
traditionally offered by hospitals, including any parent or subsidiary at the time the transaction occurs or at
any time thereafter.”).
4 Tennessee Proposed Rules, Chapter 1200-38-01-05 (1).
5 See Tenn. Code Ann. § 68-11-1303 (e).
6 See Tennessee Proposed Rules, Chapter 1200-38-01-03 (2) (a) 1.-7.
7 See Tennessee Proposed Rules, Chapter 1200-38-01-03 (2) (b) 1.-4.
8 See, e.g., FTC Staff Comment to Sen. Michael H. Ranzenhofer and Assemblyman Thomas Abinanti, N.Y.
State Legislature, Concerning S.B. 2647 and A. 2888, Intended to Exempt Certain Public Health Entities
from the Antitrust Laws (June 2015),
https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-new-york-state-
senator-ranzenhofer-new-york-state-assemblyman-abinanti-concerning/150605nypublichealthletter.pdf;
FTC Staff Comment to Sen. Chip Shields, Or. State Legislature, Concerning S.B. 231-A, Intended to
Exempt Certain Collaborations Among Competing Health Care Providers and Payers Participating in a
Primary Care Transformation Initiative (May 2015),
https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-regarding-oregon-
senate-bill-231a-which-includes-language-intended-provide-federal/150519oregonstaffletter.pdf; FTC Staff
Comment to New York State Department of Health, Concerning Certificate of Public Advantage
Applications, Intended to Exempt Performing Provider Systems from the Antitrust Laws (Apr. 2015),
https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-center-health-care-
policy-resource-development-office-primary-care-health-systems/150422newyorkhealth.pdf; FTC Staff
Comment to Sen. Catherine Osten and Rep. Peter Tercyak, Conn. Gen. Assembly, Concerning H.B. 6431,
Intended to Exempt Health Care Collaboratives from the Antitrust Laws (June 2013),
https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comment-connecticut-
general-assembly-labor-and-employees-committee-regarding-connecticut/130605conncoopcomment.pdf.
9 See Deborah L. Feinstein, Dir., Bureau of Competition, Remarks at the Fifth National Accountable Care
Organization Summit in Washington, DC: Antitrust Enforcement in Health Care: Proscription, not
Prescription (June 19, 2014),
https://www.ftc.gov/system/files/documents/public_statements/409481/140619_aco_speech.pdf (noting
that the federal antitrust agencies have challenged very few of the thousands of health care provider
mergers, joint ventures, and other types of collaborations that have occurred in recent years, and have
“brought those challenges only after rigorous analysis of market conditions showed that the acquisition was
likely to substantially lessen competition.”).
10 See Tennessee Proposed Rules, Chapter 1200-38-01-02.