FTC Sues to Compel State-Approved Hospital Acquisitions to Comply with Hart-Scott-Rodino Act Requirements

Last Thursday, the Federal Trade Commission (“FTC”) took the step of filing suit in federal court asserting that parties to a hospital acquisition who had obtained a Certificate of Public Advantage (“COPA”) from their state were nevertheless required to comply with the Hart-Scott-Rodino Act’s (“HSR Act”) advance notification requirements.

As discussed in our post from September 12, 2022, a COPA typically involves an applicable state agency approving a merger or acquisition notwithstanding the likely anticompetitive effects (often the creation of monopoly power) in exchange for which the parties agree to various terms and conditions intended to mitigate harms from a loss of competition.[1]

Where the issuance of the COPA has been authorized by a clearly articulated and affirmatively expressed state policy and where following issuance a state actor actively supervises the implementation and subsequent operations of the merged entity, it has been thought that the merger is immune from federal antitrust laws under the doctrine of “state-action” immunity.

While the FTC has previously expressed its dislike of COPAs and has urged states not to issue them,[2] and has conducted investigations in cases in which COPAs were proposed to be issued, in this instance the FTC has filed suit seeking to require parties who have obtained a COPA to make an HSR Act filing and submit to the HSR Act’s requirements, including the waiting periods intended to give the FTC time to investigate whether the proposed acquisition/merger violates Section 7 of the Clayton Act or Section 5 of the FTC Act. A recent example of the FTC urging a state not to grant a COPA involved the application submitted to the New York Department of Health by SUNY Upstate Medical University and Crouse Health System, who were proposing to merge. Last October, in response to that application, the FTC submitted a lengthy public comment to the Department urging it not to issue the COPA. In February of this year, the parties announced that they were calling off the merger.

The FTC’s just-filed lawsuit relates to the acquisition (“Acquisition”) by Louisiana Children’s Medical Center (“LCMC”) of Tulane University Medical Center, Lakeview Regional Medical Center, and Tulane Lakeside Hospital from HCA Healthcare, Inc. (“HCA). In the petition filed last Thursday, the FTC asks the U.S. District Court for the District of Columbia to issue a temporary restraining order and a preliminary injunction preventing LCMC from further combining those hospitals with its other hospitals until the court rules on the merits of the suit. LCMC and HCA announced the completion of the Acquisition on January 3rd of this year following the Louisiana Attorney General issuing a COPA on December 28, 2022.

The FTC’s suit follows LCMC’s and HCA’s filing complaints the day before in the U.S. District Court for the Eastern District of Louisiana. In those suits, LCMC and HCA seek declaratory judgements that the HSR Act does not apply to transactions such as theirs, which they assert are immune from federal antitrust laws under the state-action doctrine on account of the Attorney General’s issuance of the COPA.

According to the complaints:

  • The COPA was issued under authority granted to the Attorney General by a Louisiana state law that establishes a process for exempting certain health care acquisitions from enforcement of the antitrust laws in order to promote public health.
  • The COPA was issued only following the submission by LCMC and HMA of a comprehensive application, and following a public notice-and-comment period and a public hearing all as provided for under Louisiana law.
  • Under that approval and as contemplated by Louisiana law, the COPA included a set of terms and conditions establishing active supervision by the Attorney General of the Acquisition’s implementation and subsequent operation. It also included, among other things, affirmative covenants concerning restrictions on rate increases, capital investments for new facilities and services, service line improvements, charity care, programs and services for the poor and underserved, creation of centers of excellence, medical research and benchmarking and reporting.

As a result, LCMC and HCA assert that the Acquisition is “clearly and indisputably immune from the federal antitrust laws—including the HSR Act—consistent with a long line of Supreme Court precedent affirming the state-action antitrust immunity, as well as the HSR Antitrust Act’s plain text.”

The most important case cited by LCMC and HCA in support of their request for declaratory judgment is the Supreme Court’s decision in FTC v. Phoebe Putney Health Sys., Inc., 568 U.S. 216 (2013). In that case, the Court held that state-action immunity did not apply to what basically amounted to an acquisition by a Georgia hospital authority, which owned one hospital in a county, of the only other hospital in the same county. The authority argued that immunity applied to protect the transaction on account of Georgia’s Hospital Authorities Law which granted political subdivisions the power to create hospital authorities to provide for the operation and maintenance of needed health care facilities.

The Supreme Court concluded that state-action immunity did not apply because the Georgia law did not clearly articulate and affirmatively express a policy allowing hospital authorities to make acquisitions that substantially lessen competition. However, in so doing, the Court recognized that, while state-action immunity is disfavored, the anticompetitive acts of private parties are entitled to immunity if they satisfy a two-part test, requiring first that the challenged restraint be one clearly articulated and affirmatively expressed as state policy to displace competition, and second that the policy be actively supervised by the state. Importantly, the Court also explained that a state legislature need not expressly state that intent, but the anticompetitive effect must have been the foreseeable result of what the state authorized.

In their complaints, LCMC and HCA assert that the COPA they were issued was in fact issued pursuant to a Louisiana law that satisfied these requirements. Quoting from the law:

“The legislature finds that the goals of controlling health care costs and improving the quality of and access to health care will be significantly enhanced in some cases by . . . mergers and consolidations among health care facilities.

The purpose of this Part is to provide the state . . . 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. It is the intent of the legislature that supervision and control over the implementation of these agreements, mergers, joint ventures, and consolidations substitute state regulation of facilities for competition between facilities and that this regulation have the effect of granting the parties to the agreements, mergers, joint ventures, or consolidations state action immunity for actions that might otherwise be considered to be in violation of state antitrust laws, federal antitrust laws, or both.”

In its request for a restraining order and a preliminary injunction, the FTC asserts that the HSR Act required LCMC and HCA to report the Acquisition by submitting a pre-merger notification filing to the FTC because the size of the parties and the size of the transaction tests under the Act were met. The FTC further asserts that the parties have “flouted their HSR Act obligations by failing to report their transaction and then consummating it, without filing the required pre-merger notification and without a cognizable justification or exemption.”

The FTC’s position is essentially that the HSR Act’s notification requirements are not expressly preempted. In its petition and in support of its position, it asserts that:

  • LCMC and HCA never claimed that the acquisition otherwise was not subject to the HSR Act’s filing thresholds.
  • The supposed exemption claimed by LCMC and HCA appears nowhere in the text of the HSR Act and has never been recognized as an exemption from the HSR Act’s notification requirements by any court in the HSR Act’s 47-year history.
  • Neither the FTC nor the DOJ has promulgated an interpretation of the HSR Act exempting parties from filing where those parties received a similar certificate.
  • LCMC and HCA were required by law to file the required pre-merger notifications.
  • They were required by law to wait to consummate the Acquisition and have refused to do so.
  • Ensuring their adherence with the law requires the court’s prompt intervention. An order to hold separate is necessary while the FTC investigates whether the transaction violates the antitrust laws, so as to prevent the parties from further combining the assets, as intended by the HSR Act.
  • Should the FTC conclude that the transaction may substantially lessen competition, tend to create a monopoly, or constitute an unfair method of competition, the absence of a hold separate order would seriously undermine the FTC’s ability to seek an adequate remedy to any harm caused by the transaction.

A few comments and updates as the litigation moves forward:

To date, it has been the view of acquiring/merging parties that a properly structured and issued COPA approving an acquisition/merger that meets the tests articulated by the Supreme Court in the Phoebe case results in state-action that preempts the application of federal antitrust laws, including the HSR Act, notwithstanding that it might have certain anticompetitive effects.

Many states have enacted COPA laws that seek to permit hospital acquisitions/mergers that might otherwise have been challenged by the FTC and found to violate federal antitrust laws. According to the National Conference of State Legislatures, as of February 22, 2023, 19 states had COPA laws in effect.[3]

There have also been instances in which merging parties in states without COPA laws have been permitted to proceed with their merger in settlement of litigation. For example, Pennsylvania is not a COPA state. However, on several occasions in the past, although not recently, the Pennsylvania Attorney General and/or the U.S. Department of Justice in settlement of litigation seeking to block hospital mergers or consolidations have entered into agreements (akin to COPAs) with the parties pursuant to which the merger/consolidation is allowed to proceed subject to extensive conditions and requirements relating to post-transaction conduct and operations imposed on the parties, all designed to reduce the likelihood of anticompetitive conduct while seeking to assure that the asserted pro-competitive benefits are realized.

Following the filing of the complaints by the parties, the D.C. District Court on April 21st issued an order agreed to by all parties pursuant to which LCMC effectively covenanted to maintain the status quo with respect to the hospitals pending either the court granting the FTC’s request for a preliminary injunction or the case being transferred to the District Court for the Eastern District of Louisiana. In the interim, the FTC’s request for a temporary restraining order is denied.

On April 23rd, the Louisiana Attorney General filed a motion to intervene in the suits filed by LCMC and HCA in the Eastern District of Louisiana.

While it anticipated that LCMC and HCA will file motions requesting that the FTC’s case be transferred to the Eastern District of Louisiana, it is not clear at this juncture which court will ultimately adjudicate the pending suits.


[1] The terms and conditions intended to mitigate harms from a loss of competition typically include, among others, price controls and rate regulations, cost-caps, margin-caps, mechanisms for sharing cost savings and requirements concerning contracting, including commitments about various contractual provisions between hospitals and commercial health insurers.

[2] See FTC Staff Policy Paper, August 15, 2023, and discussion in our blog post, dated September 12, 2022 “Federal Trade Commission Policy Paper Takes a Hard Stance Against Certificates of Public Advantage.”

[3] Maine, New York, Virginia, West Virginia, Tennessee, Ohio, Indiana, Wisconsin, South Carolina, Florida, Mississippi, Louisiana, Texas, Kansas, Nebraska, Idaho, Wyoming, Washington, Oregon