Health care merger dispute sees summary judgment bids from Feds

Attorneys for the federal government and those backing the merger of two Louisiana hospital systems have both asked a U.S. district court to end a monthslong dispute which hinges on whether the state approval process can pre-empt of federal antitrust laws.

“The State of Louisiana has determined that the acquisition serves the interest of the people of the State,” wrote Simpson Thacher & Bartlett attorneys Sara Y. Razi, Abram Ellis and Joshua Hazan in a new motion for summary judgment in their fight against Federal Trade Commission enforcement of a pre-merger disclosure law. “Enjoining integration would nullify that policy choice and severely impinge on the State’s COPA [Certificates of Public Advantage] program.” 

The case stems from a deal made Jan. 1 when HCA Healthcare, HCA, consummated a deal to merge with Louisiana Children’s Medical Center, LCMC. Louisiana legislators approved the deal last Fall despite antitrust concerns under a state Certificates of Public Advantage, or COPA, law which the system’s claim precludes enforcement of federal antitrust review. In filings the merging parties noted any competitive concerns would be monitored by the state Attorney General’s office, and the COPA protection could be yanked if they failed to meet expectations. 

But in a summary judgment motion filed by FTC Bureau of Competition attorneys Mark Seidman, Daniel J. Matheson, Adam Pergament and Stephen Rodger, the agency argues they don’t know if there’s any actual antitrust concerns and instead claim the merger still should have faced review despite COPA approval.

“There is no dispute that the hospitals consummated a transaction that exceeded the monetary thresholds for filing notifications under the [Hart-Scott-Rodino] Act. And there is no dispute that the Hospitals never filed the required notifications,” the attorneys wrote, citing the 1976 law which they say requires additional disclosure before a deal can go forward. “The Hospitals instead assert they are exempt from the requirements of the HSR Act due to the state action doctrine, which, while a judicially created affirmative defense to antitrust liability, is not one of the enumerated exemptions to the HSR Act.”

The fascinating part of the dispute lies in that state action doctrine hook, a judicially established concept rooted in the principles of federalism and the 14th Amendment. 

In 2013 the U.S. Supreme Court chimed in on the issue in FTC v. Phoebe Putney Health. Justice Sonya Sotomayer wrote for the unanimous opinion that a Georgia law “has not clearly articulated and affirmatively expressed a policy allowing hospital authorities to make acquisitions that substantially lessen competition.”

Phoebe Putney offered clarity for states and dealmakers going forward, and what followed was a period of experimentation for business and the federal agency after it ordered the sharing of data from five recently-merged companies given antitrust immunity under state-issued COPAs. That government research rendered a disapproval of COPAs for the most part, but the LCMC dispute avoids antitrust concerns more broadly and instead homes in on the state action theory.

Notably Eastern District of Louisiana District Judge Lance M. Africk won’t be the first jurist to rule on the dispute. In May District of Columbia District Judge Amy Herman Jackson denied the agency’s request to keep the dispute in the arguably more favorable DC court. She cited concerns with Louisiana state law which governs COPA rules as part of her reasoning. 

“Interpretation of the COPA statute will affect not only respondent hospitals in this case, but also other entities in Louisiana and may indeed trigger action by the state’s legislature and regulatory bodies, depending on the outcome,” Jackson wrote in the order transferring the fight back to LCMC’s home state.

Stevens & Lee attorney Charles Honart wrote in a blog post that the transfer made sense considering the interaction between state law and the Sherman Act under other SCOTUS precedents. 

“It is clear that deciding the issue will require an analysis of the statute, its regulations, and the state’s implementation of both,” Hobart wrote, citing concerns under Parker Brown, “which held that the Sherman Act must be taken to be a prohibition of individual and not state action.”

Attorneys from Hogan Lovells, Jones Day, Adams And Reese, Barrasso Usdin Kupperman Freeman & Sarver and Phelps Dunbar are also repping the hospital systems in the dispute.