In February 1998, the public hospital in Columbia SC merged with its major competitor, a non-profit hospital. The merger, which gave the combined hospitals 75% or more local market share for most services, proceeded under the antitrust protection of a Certificate of Public Advantage (COPA), issued by the South Carolina Department of Health and Environmental Control (DHEC).
The COPA made promises including: specific cost savings, mostly from avoiding future duplication of capacity; no predatory exclusive contracts or price discrimination; no increase in prices to private patients, any faster than a statewide hospital services price index; continued service to the medically indigent; no merger-related layoffs; and a specific amount of spending on local public health and health screening projects.
Two annual reviews of the COPA have been completed and audited. The merger has been found in compliance, except that spending on local projects has been less than the promised rate. DHEC approved an extension of the spending schedule.
The hospitals' revenue has deteriorated sharply since the merger, turning the projected surpluses into deficits. Staff was cut, but DHEC judged these layoffs to be non-merger-related. About half the revenue shortfall was due to a surprising reduction in case-mix-adjusted revenue per patient from non-governmental payers. A merger prevents competitive price cuts between merging hospitals, but a merger can also bring administrative chaos which, here, seems to have allowed insurers to tighten reimbursements. Revenue per private patient recovered some in the second year, but was still 10% below the pre-merger level.
Learning Objectives: At the conclusion of the session, the participant (learner) in this session will be able to: 1. Describe the purpose of a Certificate of Public Advantage. 2. Assess strengths and weaknesses of the Certificate of Public Advantage as a public policy tool. 3. Assess the ability in practice of a hospital with a legally-protected local near-monopoly to control its economic environment.
Keywords: Public Hospitals, Competition
Presenting author's disclosure statement:
Organization/institution whose products or services will be discussed: None
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.