In the spring, Austin King caught wind of big news in his hometown of Abilene.
King is an ear, nose and throat doctor there, and the former president of the Texas Medical Association. He learned that Hendrick, the city’s biggest hospital, had plans to acquire its smaller competitor, Abilene Regional. Hendrick and Abilene Regional were the only two hospitals in town, so a merger would really shake up local health care. And King was concerned about that.
“Most people thought that was really odd that that would be allowed to go forward because of the obvious monopoly that would be massive,” King said.
Hendrick also planned to buy the hospital in Brownwood, 80 miles to the southeast, which would give them control over the hospital business in a large swath of central Texas. Something similar was happening in San Angelo, too, where Shannon Health System planned to buy San Angelo Community Medical Center.
The three hospitals being acquired were all owned by Community Health Systems, a Fortune 500 Company based in Tennessee. And the deals seemed to be moving fast. It seemed fishy to King.
“To me it just doesn’t really pass the smell test,” he said.
But there was a reason the deals were moving quickly: House Bill 3301. The Texas Legislature passed it in 2019. According to one of its authors, it wasn’t exactly one of the marquee measures of that session.
“We might have had two or three other legislators contact our office to ask ‘What, what’s going on with this bill? Help us understand what this bill is about,’” said Rep. Stan Lambert, a Republican from Abilene.
Lambert wrote the bill with another Republican representative, Drew Darby of San Angelo, who declined to comment for this story. They crafted it with help from lawyers and administrators for the merging hospitals, Lambert said.
House Bill 3301 passed easily, with only six votes opposed. That could be because the law only applies to eight counties in Texas – including Taylor and Tom Green Counties, where Abilene and San Angelo are located.
“By limiting it to a smaller number of communities that were going to be impacted by this, frankly it made it legislation that was easily passed,” Lambert said.
Usually, mergers like these need the approval of the Federal Trade Commission. But the bill changed that. Instead, the merging hospitals would only need the OK from a state agency – no FTC approval required. This makes the regulatory process cheaper and easier to navigate.
“The purpose of doing this at the state level was to circumvent and to bypass federal trade regulations, and antitrust regulations. I mean it was solely for that purpose, to avoid having to try to explain to someone in Washington, D.C., why it was important in Abilene, Texas, or San Angelo, Texas, or Nacogdoches, Texas – was really going to be beneficial for the consumer,” Lambert said.
Savings From Scale?
To get approval for the mergers, the hospitals sent an application to the Texas attorney general’s office, which then made a recommendation to the state Health and Human Services Commission. No federal approval required.
To merge without federal approval, the hospitals had to get something called a Certificate of Public Advantage, or COPA for short. To get it, the hospitals had to prove that benefits from the merger outweigh the negatives that come from losing competition.