On April 22, 2015, the Federal Trade Commission submitted a public letter to the New York State Department of Health (DOH) expressing “strong concerns” over state regulations offering to provide antitrust immunity to certain healthcare collaborations undertaken with DOH’s approval and supervision.  This letter is consistent with the FTC’s continued opposition to grants of immunity from federal antitrust laws based on state action.  The letter also presents a meaningful opportunity to re-evaluate the interplay between state and federal antitrust enforcement authority, and the related doctrine of state action immunity, particularly in the healthcare arena which has seen an unprecedented spike in collaborative arrangements following passage of the Affordable Care Act.

Briefly by way of background, New York’s Certificate of Public Advantage or COPA regulations came into effect in 2014 to provide a structure for state supervision of collaborative healthcare arrangements.  It is part of a broader effort to promote community-level collaborations among New York healthcare providers to promote system reform, improve quality, and reduce cost, specifically with respect to treating governmentally-insured patients.  COPA regulations require DOH – in consultation with the New York Attorney General (NYAG) – to consider a number of factors before conferring antitrust immunity, including a competitive analysis of the relevant market, weighing potential procompetitive benefits with the anticompetitive effects, and assessing the availability of less restrictive alternatives.

In expressing its concerns with the COPA regulations, the FTC explicitly reaffirms its intent to continue challenging anticompetitive transactions, as well as oppose any defenses thereto based on legally insufficient claims of state action immunity.  The doctrine of state action immunity, now squarely at the intersection of federal and state antitrust oversight in New York, is typically an affirmative defense which requires its proponent to demonstrate both “clear articulation” of a state’s desire to suspend competition and “active supervision” by the state of the conduct to be immunized.  The FTC has had very considerable experience and success in narrowly confining state action immunity, including its most recent Supreme Court victories in North Carolina State Board of Dental Examiners v. FTC, 135 S. Ct. 1101 (2015) and FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1013 (2013).

State action immunity first requires its proponent to demonstrate that the challenged collaboration was undertaken pursuant to a “clearly articulated” affirmative state policy to supplant competition with regulation.  This first prong ensures that the state has indeed, as a matter of policy, authorized departures from the norm of free market competition.  Notably, the FTC’s silence with respect to this first requirement in its April 22nd letter to DOH can reasonably be interpreted as a tacit admission that the applicable New York law clearly articulates the state’s intent to supplant competition and provide antitrust immunity.  Indeed, the New York law cited in the COPA regulations is explicit as to its intent to supplant competition, and appears to go beyond what is required under existing case law to be deemed sufficiently “clear articulation” by the state.

Second, state action immunity requires “active supervision” of the private conduct by the state, such that any restraint on competition is a result of knowing, deliberate state intervention rather than simply an agreement among private parties.  According to a 2011 FTC letter reacting to a prior New York bill providing similar antitrust immunity as that provided in COPA, “private parties claiming state action immunity face a high bar” in the FTC’s view.[i]

In the more recent April 22nd letter at issue here, the FTC states, albeit buried in a footnote, that it takes no position on whether the COPA regulations as written satisfy the active supervision prong of the state action doctrine.  The letter then goes on to say that the FTC has not done its own antitrust analysis of the three performing provider systems (PPSs) seeking COPA status because of the “limited duration of the public comment period for COPA applications.”[ii]  However, the FTC closes by saying that it will continue to challenge defenses based on state action immunity “where the state fails to provide adequate active supervision.”  When this is coupled with the FTC’s silence as to the “clear articulation” prong of the doctrine, it appears to suggest that the FTC is leaving open a challenge to any PPS with COPA protection, apparently on the basis of insufficient active supervision by the state of New York.  But given that the state agency charged with actively supervising COPA applicants is the NYAG, which also enforces New York antitrust law, this creates the prospect that the FTC would have to in effect accuse the NYAG of failing to actively supervise.

It remains to be seen, of course, whether the FTC will ever in fact challenge any of the PPSs seeking COPA protection.  And such a confrontation would be a significant breakdown in what practitioners have observed is close working cooperation between the FTC and the NYAG in reviewing healthcare mergers.  Nevertheless, the FTC’s letter to DOH may fairly be viewed as at least a placeholder, explicitly noting that each of the three PPSs seeking COPA protection appear to involve “substantial portions of competing providers” in the same geographic regions, “thereby increasing the potential for anticompetitive harm.”  While the FTC says it has not conducted its own antitrust analysis, its observation that these three PPSs involve substantial portions of competing providers seems to preliminarily indicate that in the FTC’s view, they meet the market power requirement which serves as an important threshold screen for evaluating liability under both Section 1 of the Sherman Act and Section 7 of the Clayton Act.  These three PPSs, the FTC further notes, also appear to specifically contemplate joint contract negotiations with insurance payers, and acknowledge the resulting antitrust risks they face without COPA protection.  Finally, if the specific collaborative arrangements contemplated by these PPSs are ultimately structured in ways that make them reportable under the Hart-Scott-Rodino Act, the FTC would then have its own opportunity to conduct a detailed antitrust analysis as to the legality of these collaborative arrangements under federal antitrust laws short of litigation, unless a PPS equipped with COPA immunity chose to try and resist HSR review on that basis.

It is also worth noting now that the competitive analysis mandated under COPA’s regulatory scheme, at least on its face, appears to largely comport with the rule of reason analysis applied under Section 1 of the Sherman Act, which would be applicable for PPS consolidations not sufficiently integrated to be analyzed under the Clayton Act.  COPA can therefore arguably be viewed as a policy decision by New York that the state – rather than federal antitrust enforcement agencies – should serve as the official arbiter of permissible collaborations in healthcare.  Indeed, one of the main concerns expressed in the FTC letter is that because existing antitrust laws already permit procompetitive collaborations benefitting healthcare consumers, no special antitrust immunity is necessary to ensure that such procompetitive collaborations occur.  Because COPA is unnecessary, the FTC reasoned, it will in effect – contrary to the state’s legislative intent – likely lead to increased costs and decreased access for New York consumers.

However, from a policy perspective, the response is certainly available that COPA’s express grant of immunity could provide a measurable amount of business certainty or assurance to healthcare providers interested in participating in collaborative arrangements, against the risk of challenge by antitrust enforcement agencies.  Such assurance may be particularly valuable given the existence of not insignificant ambiguity as to what will and will not be deemed sufficient clinical integration or other procompetitive efficiencies to pass muster under federal antitrust laws.  Indeed, the recent Ninth Circuit decision in St. Alphonsus Med. Ctr. – Nampa Inc. v. St. Luke’s Health Sys., Ltd., No. 14-35173 (9th Cir. Feb. 10, 2015) – which represents a significant victory for the FTC’s enforcement efforts  – is an important lesson for providers that they must be prepared to demonstrate concrete efficiencies which clearly enhance competition and are merger-specific, i.e., not readily achievable without the merger or collaboration.

In sum, the use of New York’s COPA regulations by specific entities to obtain state action immunity, and the FTC’s response thereto, create a significant opportunity for important insights about the interplay between state and federal oversight of the healthcare industry as the COPA process plays out.


[i] Letter from Susan DeSanti et al., Fed. Trade Comm’n, to Senator John Bonacic, New York State Senate, Oct. 20, 2011.

[ii] Similar concerns were voiced by a number of New York health plans and business organizations who urged the FTC and Department of Justice to review antitrust concerns relating to COPA.  Letter from New York State Health Plan Association, et al. to Tara Koslov, Fed. Trade Comm’n and Peter Mucchetti, Dep’t. of Justice, Oct. 10, 2014.  These private parties were concerned that DOH’s review of COPA applications was set to take place on such an expedited basis, and with such limited resources, as to prevent any meaningful and thorough review as required by the active supervision prong of state action immunity.