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Certificates of Public Advantage and Hospital Mergers

Christopher Garmon and Kishan Bhatt

Journal of Law and Economics, 2022, vol. 65, issue 3, 465 - 486

Abstract: Certificates of public advantage (COPAs) grant antitrust immunity to merging hospitals conditional on active state regulation. We investigate the long-run effects of the four horizontal hospital mergers shielded with COPAs prior to 2015. We find that COPA regulation, if properly designed, can effectively constrain prices in the absence of competition among providers. However, two of the four evaluated COPAs were poorly designed and allowed the merging hospitals to evade regulation and increase price during the period of COPA regulation. Furthermore, all but one of the COPAs expired or were repealed in response to lobbying by the regulated hospitals, which led to large, statistically significant price increases and, for the merger for which quality data are available, a reduction in quality of care. In the long run, hospital mergers shielded with COPAs often lead to higher prices and reduced quality from unconstrained provider market power.

Date: 2022
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Handle: RePEc:ucp:jlawec:doi:10.1086/719661