Highlight on Alaska: FTC, DOJ back Alaska Senate’s move to eliminate certificates of need

Citing “considerable competitive concerns” raised by certificate of need (CON) laws, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued a joint statement in support of Alaska Senate Bill 62 (SB 62), which would repeal Alaska’s CON program effective July 1, 2019. CON programs generally require firms to demonstrate an unmet need for services to the state before being permitted to enter the health care market, for example, by building a new hospital. Sen. David Wilson (R-Wasilla), who submitted the bill, applauded the statement, noting, “As government officials, we should not lose sight of a basic truth that competition improves the quality and lowers the costs of services; it’s what drives innovation and ultimately leads to the delivery of better healthcare.”

CON laws were enacted to reduce costs and improve access to care, based on the assumption that the existence of too many health care facilities in the same area could lead to inflated pricing for services. However, the FTC and DOJ opined that the laws create barriers to entry and expansion, allow entities to abuse the process to delay or halt competitors’ entry or expansion, and deny consumers effective remedies from anticompetitive mergers.

Alaska’s program requires parties wishing to spend at least $1.5 million on health care facility construction, alter an existing facility’s bed capacity, or add a category of health services provided to an existing facility to secure a CON after demonstrating that the quality, availability, or accessibility of existing health care resources is less than necessary “to maintain the good health of citizens of [the] state.” Specifically, it requires parties to submit an application with a fee ranging from $2,500 to $75,000.  The Department of Health and Social Services holds a public meeting and solicits comments and then submits a recommendation to the Commissioner of Health and Social Services, who makes the ultimate decision. Members of the public substantially impacted by the CON may initiate administrative proceedings and eventually seek judicial review.

The agencies stated that the existing state law raises both the monetary and time-based costs of entry and expansion, eliminates or reduces competitive pressure that normally incentivizes firms “to innovate, improve existing services, introduce new ones, or moderate prices,” and, in the event of denials, prohibits entry or expansion.  Furthermore, the law allows incumbent firms to drag out the CON application process by filing challenges or comments in order to delay competitors’ entry into the market. It also provides a platform that allows firms to form anticompetitive agreements–for example, two firms could agree to file CON applications for separate services to avoid a lengthy application process and potential challenges from one another. Finally, the existing law could impede antitrust remedies. As an example, the joint statement cited to the case of FTC v. Phoebe Putney.  Although the Supreme Court eventually ruled that an anticompetitive merger was subject to antitrust scrutiny, the entities involved had already merged and the applicable state’s CON laws made divestiture “virtually impossible.”