Association for Public Policy Analysis & Management

Certificates of Public Advantage (COPAs) grant antitrust immunity to merging hospitals conditional on active regulation by the state. Recent hospital mergers have been shielded from antitrust challenge through the use of COPAs, yet little is known about the long-run effects of COPA regulation. We investigate the price effects of two COPAs: one used to form Benefis Healthcare in Great Falls, Montana and the other used to form Palmetto Health in Columbia, South Carolina. Both mergers occurred in the 1990s, yet the COPAs used to shield the mergers from antitrust enforcement were repealed or significantly revised in the 2000s, allowing us to evaluate the effect of COPA regulation. Our results are mixed. We find that Benefis’s price during the COPA period closely tracked the average price across hospitals in duopoly markets in Montana and the Missouri River Valley. The removal of the COPA in 2007 led to a price increase of at least 20 percent relative to controls and this result is robust to alternate control groups and specifications. Palmetto’s price closely tracked the average price of control hospitals in the initial COPA period and after the state renegotiated the COPA conditions in 2003. The results illustrate that COPAs and state regulation can effectively constrain prices in the absence of provider competition. However, the removal of COPA regulation can, in some cases, lead to higher prices from unconstrained provider market power.