By Rose Hoban
Last week, Gov. Pat McCrory put his pen to paper and signed into law Senate Bill 698, a bill that will help several struggling hospitals in their attempts to reopen.
Tucked into the bill, is a single line repealing two laws written in the 1990s, when Asheville’s Mission Hospital asked for permission to merge with St. Joseph’s Hospital.
That 1995 merger would have created a virtual health care monopoly in Asheville, and so the state approved a “certificate of public advantage.” The COPA allowed the merger to proceed while protecting Mission from anti-trust litigation that may have come because of its new size.
In exchange, Mission accepted limitations, such as a cap on its profit margin and inpatient and outpatient hospitals costs. The regulation also limited Mission’s ability to employ more than 20 percent of all doctors in Buncombe and Madison counties.
In recent years, Mission has been chafing under the restrictions and sought to have the COPA lifted.
Now under SB 698, that COPA will expire on New Year’s Day 2018.
The repeal of Mission’s COPA is likely to be the first of many that will chip away at North Carolina’s certificate of need stipulations, a suite of regulations and laws intended to reduce the development of too many medical resources.
During hearings on SB 698, Republican Senate leaders made no bones about their dislike of certificate of need and COPA laws.
“I want to emphasize that the certificate of need system as a whole is antiquated,” said Sen. Ralph Hise (R-Spruce Pine). “We need a much larger elimination of the certificate of need system.”
Long fight
In 2012, a heated battle was waged over the continuation of the COPA, which Mission’s leaders wanted terminated and the system’s competitors have sought to keep in place.
Unlike COPAs in other states, which tend to function for perhaps three to five years, Mission’s has never had a sunset.
“The COPA was designed to protect the patients in Western North Carolina and I don’t believe it’s in their best interest for the COPA to go away,” said Graham Fields, assistant to the president of Park Ridge Health.
Park Ridge, in neighboring Henderson County, is Mission’s closest competitor. It’s decidedly smaller than Mission, which has grown to be the largest health system in the state’s western counties. With the COPA’s cap on earnings, the hospital has used extra revenue to purchase other area hospitals.
In many senses, the open-ended COPA has served as long-term protection for Park Ridge.
“In legal terms, the COPA is a substitute for competition and it can only be removed or replaced by true competition,” Fields said. “In Buncombe County, Mission Health Care still operates at a close to 90 percent market share, which does not indicate that adequate competition has entered the market to substitute for the COPA.”
But in recent years, the COPA’s cap on physician employment has increasingly become a disadvantage to hospitals that are looking to acquire physician practices in response to changes driven by federal, and now state, health care reforms.
Meanwhile, regulations such as certificate of need and COPA have been losing favor at the legislature, where some lawmakers believe the laws restrict competition and drive up prices. Republicans in the majority have been aggressive about introducing bills to eliminate them. There were several during this session and lawmakers have vowed to file more.
When he presented SB 698 for a vote in late September, Hise described the COPA, “that’s gone on since I was in high school,” as something that had “long outlived its usefulness.”
‘High-value hospital care’
But with a COPA that’s run for this long, it’s hard to know what will happen after it’s been lifted, said Bob Berenson, a health economist from the Washington, D.C.-based Urban Institute. He’s been researching and watching Mission’s COPA for a decade and said it’s the longest-running one in the country.
“Both Medicare and private payer per-person costs have been found to be low in Asheville, though quality is good, according to independent findings using different data,” wrote Berenson in an assessment on the COPA published early this year. “Indeed, well-recognized policy experts have held up Asheville as one of the best communities for providing high-value hospital care.”
In an interview with N.C. Health News, Berenson said there have been some “pretty good results” from Mission’s COPA. He argued the COPA has probably kept prices in Asheville artificially lower due to enforcement of the cap on Mission’s operating margin.
“Their Medicare spending was in the lowest segment across the country in per-capita spending; they have consistently high quality and they seem to be pretty good citizens,” Berenson said.
He also said that if lawmakers think removing the COPA will result in lower prices because there’s more competition, they may be in for an unpleasant surprise.
Mission “potentially could be demanding significantly higher prices than they’ve been able to get so far,” Berenson said. “It depends on what attitude they have when they are not constrained by the COPA.”
Antitrust vs. consolidation
The General Assembly passed a Medicaid reform plan this past session under which health care providers will be encouraged to form themselves into “provider-led entities,” groups of hospitals, clinics and physician groups to provide care for Medicaid patients while taking on most of the financial risk for their care.
Local industry observers say these PLEs will likely form around hospitals, with some of North Carolina’s larger hospitals providing a hub in a hub-and-spoke model of care.
But as health reform proceeds at both the national and local level, there are now conflicting impulses at play. One is the desire of health care systems to consolidate, something that’s encouraged by the federal Centers for Medicare and Medicaid Services and now the General Assembly.
The other impulse comes from the Federal Trade Commission, which is on the lookout for the possible formation of monopolies. In general, the FTC tends to discourage the kind of consolidation that CMS and the state’s Medicaid reform is encouraging.
It’s a conundrum, said Duke University law professor Barak Richman, who’s a critic of COPAs and certificate of need regimens.
“The FTC is trying to preserve the market, while CMS is trying to create new institutional arrangements that could lead to better care,” he said. He speculated that the FTC might curtail the federal and state approaches to reducing costs.
And he said that the benefits of consolidation can be somewhat speculative.
“There’s a belief that these vertical arrangements might be helpful in improving care delivery, and some evidence that they might be,” Richman said. “Meanwhile, the FTC knows that if you reduce competition, you’re going to increase prices.”
He noted that the FTC has gotten more aggressive with hospitals.
In a widely watched case, the agency scored a big win this spring when a district court in the Pacific Northwest upheld a suit filed by the FTC against Boise’s St. Luke’s Hospital System over its acquisition of a large medical group. Now St. Luke’s will have to undo a 2012 merger that the FTC deemed to be monopolistic.
“But the FTC has sidled away from COPAs as a remedy of late, because there’s not a lot of confidence that COPAs accomplish what they’re supposed to,” said Richman. “They’re increasingly disfavored by the FTC.”
He said that once Mission’s COPA ends, it will have to walk a fine line in order to balance these many competing impulses.
And that will be increasingly true of hospitals in rural areas, where there’s little competition for patients.
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