FTC Staff Comment to the Virginia Department of Health Regarding Virginia's Rules and Regulations Governing Cooperative Agreements

UNITED STATES OF AMERICA
Federal Trade Commission
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Competition
Bureau of Economics
September 17, 2015
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Susan Puglisi, Esq.
Virginia Department of Health
Office of Licensure and Certification
9960 Mayland Drive, Suite 401
Richmond, Virginia 23233
Email: susan.puglisi@vdh.virginia.gov
Re: Virginia’s Rules and Regulations Governing Cooperative Agreements, 12
VAC 5, Chapter 221
Dear Ms. Puglisi:
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 Virginia’s Rules and Regulations Governing Cooperative
Agreements as promulgated by the Virginia Department of Health.2 FTC staff welcomes
the opportunity to consult with the Commissioner of the Virginia Department of Health
(“Commissioner”) during her review of any Cooperative Agreement application, to help
ensure that any substantive determination as to the potential effects of a Cooperative
Agreement includes a rigorous competition analysis based on well-accepted legal and
economic principles.
According to the emergency rules and regulations under consideration, the
Commissioner is authorized to approve an application “for the sharing, allocation,
consolidation by merger or other combination of assets”3 among two or more hospitals
operating in a Participating Locality4 in southwest Virginia “if he determines by a
preponderance of the evidence that the benefits likely to result from the Cooperative
Agreement outweigh the disadvantages likely to result from a reduction in competition.”5
The emergency rules also state that “[t]he Commissioner may consult with the Federal
Trade Commission when reviewing an Application.”6
Among the benefits to be considered by the Commissioner when reviewing the
Cooperative Agreement applications are:
• 	enhancement in quality of care and population health status;
• 	preservation of hospital facilities to ensure access to care;
• 	gains in cost-efficiency of hospital services provided;

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• 	improvements in utilization of hospital resources and equipment;
• 	avoidance of duplication of hospital resources;
• 	participation in the state Medicaid program; and
• 	total cost of care.7
Among the disadvantages to be considered by the Commissioner when reviewing the
Cooperative Agreement applications are:
• 	adverse impact on the ability of payers to negotiate reasonable 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.8
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 Commissioner 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.
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

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likely anticompetitive harm from a merger – as with a merger to monopoly or near-
monopoly – the greater and more likely to be passed through to consumers the
efficiencies need to be to pass muster under the antitrust laws. This methodology is
appropriate when applying a “preponderance of the evidence” standard, as the
Commissioner is required to do.
As the Commissioner likely is aware, and as we wish to emphasize, FTC staff has
previously expressed concerns about Certificate of Public Advantage (“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.9 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 in rural communities such as southwest
Virginia.10 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.11 Consequently, efforts to shield
such conduct from antitrust enforcement are likely to harm Virginia health care
consumers, no matter how rigorous or well-intentioned the regulatory scheme may be.
Nevertheless, we recognize that the Virginia Department of Health must promulgate
rules to implement Virginia’s new COPA legislation. FTC staff is willing to provide any
expertise and information that we are authorized to share in connection with the
Commissioner’s review of Cooperative Agreement applications. Likewise, to the extent
that the Commissioner is able to share, FTC staff investigations may benefit from
receiving information and materials submitted as part of any Cooperative Agreement
application.12 Respectfully, we urge the Virginia Department of Health to incorporate
these concepts of permissible sharing of information and expertise between the
Commissioner and the FTC 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
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

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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 quarterly meeting of
the Virginia Board of Health. See
http://www.vdh.state.va.us/administration/meetings/documents/pdf/Agenda%20September%202015.pdf.
2 See Va. Dep’t of Health Regs, 12 VAC 5, Chapter 221, VIRGINIA’S RULES AND REGULATIONS
GOVERNING COOPERATIVE AGREEMENTS at 218-30, available at
http://www.vdh.state.va.us/administration/meetings/documents/pdf/Agenda%20September%202015.pdf.
The Virginia Department of Health is required to promulgate rules implementing the Code of Va., Chapter
741, § 15.2-5384.1, enacted pursuant to Virginia HB 2316 (Apr. 15, 2015), available at
https://leg1.state.va.us/cgi-bin/legp504.exe?151+ful+CHAP0741.
3 Va. Dep’t of Health Regs, 12 VAC 5, at Chapter 221-20 (“‘Cooperative Agreement’ means an agreement
among two or more hospitals for the sharing, allocation, consolidation by merger or other combination of
assets, or referral of patients, personnel, allocation, consolidation by merger or other combination of assets,
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.”).
4 See Va. Dep’t of Health Regs, 12 VAC 5, at Chapter 221-20 (“‘Participating Locality’ means any county
or city in the LENOWISCO or Cumberland Plateau Planning District Commissions and the Counties of
Smyth and Washington and the City of Bristol with respect to which an authority may be organized and in
which it is contemplated that the Authority will function.”).
5 Va. Dep’t of Health Regs, 12 VAC 5, Chapter 221-80-H.
6 Va. Dep’t of Health Regs, 12 VAC 5, Chapter 221-80-B.
7 See Va. Dep’t of Health Regs, 12 VAC 5, Chapter 221-80-G.1.(a)-(h).
8 See Va. Dep’t of Health Regs, 12 VAC 5, Chapter 221-80-G.2.(a)-(d).
9 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.
10 See Code of Va., Chapter 741, § 15.2-5368 (describing the unique health care challenges facing
southwest Virginia communities as the basis for establishing the Southwest Virginia Health Authority and
the Cooperative Agreement regulatory scheme).
11 See Deborah L. Feinstein, Dir., Bureau of Competition, Remarks at the Fifth National Accountable Care

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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.”).
12 See Va. Dep’t of Health Regs, 12 VAC 5, Chapter 221-70.