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From Antitrust Law Daily, April 1, 2015

FTC ends challenge to Georgia hospital acquisition

By Jeffrey May, J.D.

A “less-than-ideal remedy” has ended a long-running FTC challenge to a Georgia hospital combination. The pact with Phoebe Putney Health System, Inc., the Hospital Authority of Albany-Dougherty County, and HCA Inc. is substantially similar to one that was announced in 2013 but had failed to gain Commission approval. The consent order announced late yesterday finally resolves the agency’s attack on the hospital authority’s acquisition of Palmyra Park Hospital, Inc. from HCA Inc. without requiring divestiture relief (In the Matter of Phoebe Putney Health System, Inc., FTC Dkt. 9348, File No. 111 0067).

The saga began in April 2011, when FTC issued its administrative complaint, alleging that the hospital authority’s purchase of Palmyra Park Hospital’s and subsequent lease to Phoebe Putney Health System—the operator of Phoebe Putney Memorial Hospital—would substantially lessen competition or tend to create a monopoly in the inpatient general acute-care hospital services market in Dougherty County and surrounding areas.

The agency sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding. However, the court action was dismissed on state action immunity grounds. The U.S. Supreme Court ultimately revived the suit, when it ruled in February 2013 that the state action immunity doctrine did not shield the transaction from antitrust attack (133 S. Ct. 1003, 2013-1 Trade Cases ¶78,269). Following the Supreme Court's decision, the administrative litigation, which had been stayed, was reactivated.

In August 2013, the FTC announced a proposed settlement intended to address the agency’s competitive concerns regarding the transaction. The Commission also dismissed the complaint as to HCA and Palmyra, since the proposed settlement imposed no further relief upon them. The story did not end there, however. After pending for more than a year, the settlement was denied Commission approval, and the matter was returned to administrative litigation in September 2014.

The settlement proposed in 2013 did not include divestiture relief and a majority of the commissioners—based on developments during the public comment period—concluded that structural relief might be available to remedy the apparent anticompetitive effects of the transaction. At that time, it appeared that Georgia’s certificate of need (CON) laws and regulations might not prevent a divestiture of hospital assets from being effectuated, as initially believed. The staff of the Georgia Department of Community Health (DCH) issued an initial determination that “returning Phoebe North to its status as a separately licensed . . . hospital for divestiture would not require prior CON review and approval.”

After the matter was returned to administrative litigation and a trial was scheduled, developments occurred that precluded a preferred structural remedy. A hearing officer at the DCH overturned the DCH staff’s initial determination letter on the CON. Shortly thereafter, the head of the DCH, Commissioner Clyde L. Reese, III, made a public statement supporting the hearing officer's finding. Reese had the authority to make the final agency decision in the matter. The hearing officer’s ruling was not appealed, and the ruling was rendered final. The administrative proceedings were stayed through January 28, 2015, and the stay was extended through March 31, to facilitate settlement discussions.

Now, the FTC and the parties have reached a final settlement that “closely mirrors” the settlement proposed in 2013. Once again, the consent order does not require divestiture relief. “While [a divestiture] would have been the most appropriate and effective remedy to restore the lost competition in Albany and the surrounding six-county area from this merger to monopoly, Georgia’s [CON] laws and regulations unfortunately render a divestiture in this case virtually impossible, leading us to accept this less-than-ideal remedy,” the Commission explained in a statement released yesterday. The Commission statement explained that the Albany region was deemed “over-bedded,” making it unlikely that any divestiture buyer could obtain the necessary CON approval to operate an independent hospital.

Settlement terms. The final settlement requires Phoebe Putney and the hospital authority to give the FTC prior notice before acquiring any part of a hospital or a controlling interest in other health care providers in the Albany, Georgia, area, for the next 10 years, and prohibits them from opposing a CON application for a general acute-care hospital in the Albany area for five years. Under the settlement, the parties also have stipulated that the effect of the transaction may be substantially to lessen competition within the relevant service and geographic markets alleged in the complaint.

Attorneys: Maria DiMoscato for FTC. Lee K. Van Voorhis (Baker & McKenzie LLP) for Phoebe Putney Health System, Inc. Kevin J. Arquit (Simpson Thacher & Bartlett LLP) for HCA Inc. and Palmyra Park Hospital, Inc. Frank M. Lowrey IV (Bondurant, Mixson & Elmore LLP) for Hospital Authority of Albany-Dougherty County.

Companies: Phoebe Putney Health System, Inc.; HCA, Inc.; Palmyra Park Hospital, Inc.

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