Certificates of Public Advantage and Hospital Prices: Evidence from Montana and South Carolina

A recent hospital merger wave increased concentration in many hospital markets across the country, potentially contributing to health care cost growth. Certificates of Public Advantage (COPAs)—grants of antitrust immunity contingent on active regulation by the state—shielded some of these mergers from antitrust challenges. However, little is known about the effects of COPAs. This paper analyzes the price impact of the Benefis Healthcare COPA. In 1996, Columbus Hospital and Montana Deaconess Medical Center—the only two general acute care hospitals in Great Falls, Montana—merged to form Benefis Healthcare, shielded from antitrust enforcement by a COPA issued by the Montana Department of Justice (MTDOJ). The COPA instituted a revenue cap limiting the growth of Benefis’s commercial reimbursement rates, as well as requirements for quality and access, all enforced by MTDOJ through annual audits. The audits reported nominal price increases at Benefis after an initial post-merger price decrease. Using data from the Centers for Medicare and Medicaid Services, I find that Benefis’s commercial price during the COPA period closely tracked the average price across hospitals in duopoly markets in Montana and the Missouri River Valley. In 2007, at the request of Benefis, the Montana legislature removed the COPA, leaving Benefis unregulated by the state. The removal of the COPA led to a commercial price increase of at least 18 percent relative to the price trend of hospitals in duopoly markets in Montana and the Missouri River Valley. The results illustrate that COPAs and state regulation can effectively constrain prices in the absence of provider competition. However, the compliance costs and general political fatigue associated with COPA enforcement can lead to their eventual removal, resulting in higher prices associated with the elimination of provider competition.