US FTC is dealt a blow by Louisiana District Court in acquisition challenge of Children’s Medical Center

In a case that could impact healthcare transactions nationwide and access to pediatric services, a federal court in the Eastern District of Louisiana recently ruled in favor of Louisiana Children's Medical Center (LCMC) and HCA Healthcare, Inc. in their ongoing litigation with the Federal Trade Commission (FTC). The case stems from LCMC's acquisition of three hospitals from HCA after obtaining approval from the State of Louisiana through a Certificate of Public Advantage (COPA).

Certificates of Public Advantage

Nineteen states currently have COPA laws in place.¹ COPA laws establish regulatory programs for states to authorize healthcare mergers—particularly those mergers that the state determines will likely reduce healthcare costs or improve healthcare quality—and place them under state supervision and control. By placing healthcare mergers under the purview of the state, COPA laws limit the FTC's authority to scrutinize and prevent the mergers.

The FTC has been critical of COPA programs for nearly two decades. The FTC signaled even greater scrutiny and an intent to limit COPA programs during a Commission-sponsored workshop in 2019 which culminated with a policy statement in August 2022.² Since then, the FTC has issued comments critical of specific COPA applications and recently challenged a transaction which had been authorized pursuant to a state program.

The FTC's challenge to LCMC's acquisition of hospitals from HCA Healthcare

In the LCMC case, the Louisiana Department of Justice issued a COPA that authorized LCMC's acquisition of three New Orleans area hospitals from HCA on December 28, 2022. Following its issuance, LCMC began integrating the acquired hospitals. The FTC then ordered LCMC to suspend the acquisition and comply with the HSR Act, including a waiting period before integrating the acquired hospitals.³ The FTC also threatened to impose an accruing penalty fee against LCMC.⁴

The parties to the transaction filed an affirmative lawsuit seeking a declaratory judgment that the transaction was immune from federal antitrust laws because Louisiana issued a COPA approving the acquisition. As a result, the parties argued that they were not subject to the HSR Act's (1) requirement to submit a notification of the acquisition, observe a waiting period or pay a filing fee; or (2) penalties for finalizing the acquisition without an submitting an HSR Filing or observing the waiting period. The State of Louisiana intervened in the lawsuit to defend the state's COPA program and LCMC's COPA.

The Court's order

On September 27, 2023, the Louisiana District Court held that the transaction between LCMC and HCA is exempt from the federal antitrust laws and does not need to comply with the HSR Act's requirements.

First, the court determined that the COPA issued pursuant to Louisiana's COPA statute exempts the transaction from federal antitrust enforcement. The court explained that Louisiana's COPA statute "easily" satisfies the requirements of the state action doctrine, which places certain parties and conduct outside the reach of federal antitrust law where the "challenged restraint" is "clearly articulated and expressed as state policy" and where that policy is "actively supervised by the State."⁵

Second, the court rejected the FTC's position that any transactions that do not explicitly appear on the list of exemptions enumerated in the HSR Act should not be exempted from the Act. The court determined that text of the HSR Act did not provide clear Congressional intent to displace state laws and regulations. The court explained that "absent a clear statement of Congressional intent to displace a state's ability to regulate its own commerce, courts in the antitrust context presume that Congress did not so intend."⁶ The court determined that federalism concerns, which the clear statement rule is meant to address, were especially impacted by the conflict between the HSR Act and Louisiana's COPA statute—by granting the COPA, Louisiana intended that the transaction avoid antitrust scrutiny and be effectuated immediately, but the HSR Act, if applied, would subject the transaction to antitrust scrutiny and result in at least a 30-day delay.⁷ The court therefore concluded that applying the HSR Act's requirements to transactions exempt from the antitrust laws through a COPA would "frustrate" the state's regulatory program.

What does the ruling mean?

The order in favor of LCMC is a major setback for the FTC in its ongoing battle against state COPA programs and greatly reduces the FTC's ability to review and interfere with healthcare mergers in states with COPA programs. The FTC is unlikely to accept this precedent and cede its authority over healthcare mergers to the states, and will likely challenge this adverse ruling on appeal to the Fifth (5^th) Circuit.

In the instant case involving the need to consolidate pediatric services in southern Louisiana, the desire of the parties to improve access to high quality pediatric care that is targeted and available appears to be the motive for the merger. The State of Louisiana used its statutory authority to review the application and determined that the state was in need of what the merger could provide to the state's children. The future of state authority to determine its use of healthcare resources appears to be at stake, as we monitor the ongoing dispute between the FTC and states regarding the impacts of state COPA programs on the reach of federal antitrust laws.