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From Health Law Daily, April 1, 2015

FTC settles Phoebe Putney charges, but Georgia’s healthcare planning law precludes divestiture

By Harold M. Bishop, J.D.

The Federal Trade Commission (FTC) has entered into a settlement with Phoebe Putney Health System, Inc., the Hospital Authority of Albany-Dougherty County, Georgia, and HCA Inc. resolving the FTC’s charge that the Hospital Authority’s acquisition of Palmyra Park Hospital, Inc. from HCA Inc. was anticompetitive, in that it created a hospital monopoly in the Albany, Georgia area. Although a divestiture was available when the Commission originally challenged the acquisition, an Eleventh Circuit decision allowing the parties to consummate the transaction gave rise to the circumstances that the Commission ultimately decided precluded divestiture.

Background. The Commission first challenged the acquisition in April 2011, alleging that the combination of Phoebe Putney with Palmyra, its only rival in Albany, would create a monopoly in the provision of inpatient general acute-care hospital services sold to commercial health plans in Albany and its surrounding six-county area, in violation of Section 7 of the Clayton Act (15 U.S.C. §§12-27) and Section 5 of the FTC Act (15 U.S.C. §45). In addition to issuing an administrative complaint, the Commission authorized staff to file a complaint for temporary and preliminary relief in federal district court.

In June 2011, the district court granted Phoebe Putney with Palmyra’s motion to dismiss, holding that the state action doctrine immunized the acquisition from federal antitrust scrutiny.

On appeal, the U.S. Court of Appeals for the Eleventh Circuit affirmed the district court’s dismissal on state action grounds, but agreed that “on the facts alleged, the joint operation of Phoebe Putney and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.” Following its ruling, the Eleventh Circuit dissolved the injunction pending appeal that had prevented the parties from merging, and the parties consummated the acquisition in December 2011. The Commission then filed a petition for certiorari, which the Supreme Court granted in June 2012.

In defending the challenged transaction, Phoebe Putney and Palmyra argued that the manner in which it was structured, whereby the Hospital Authority took title to Palmyra and then turned operational control over to Phoebe Putney, rendered it immune from the federal antitrust laws under the state action doctrine. Phoebe Putney and Palmyra contended that since the legislature gave hospital authorities broad general corporate powers, including the power to acquire hospitals, the challenged conduct was a foreseeable result of the law.

In February 2013, a unanimous Supreme Court ruled in favor of the Commission and reversed the dismissal of the complaint, holding that the state action doctrine did not bar the Commission from taking action (see Supreme Court declines to grant state-action immunity, holds that Georgia hospital merger violated anti-competition laws, February 20, 2013). The Court notably found that the interpretation of the state action doctrine by Phoebe Putney and Palmyra was overbroad and inconsistent with the principle that “state-action immunity is disfavored.”

Commission’s position. The Commission has written that “[w]hile we continue to have reason to believe that Phoebe Putney’s acquisition of Palmyra violated Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act, any relief attempting to restore the competition lost as a result of the merger is precluded by Georgia’s strict CON [Certificate of Need] requirements.” Therefore, although a divestiture was available when the Commission filed this case, an Eleventh Circuit decision allowing the parties to consummate the transaction gave rise to the circumstances that the Commission ultimately determined precluded a divestiture here.

Consent agreement. Under the consent agreement, Phoebe Putney and the Hospital Authority: (1) must notify the FTC in advance of acquiring any part of a hospital or a controlling interest in other healthcare providers in the Albany, Georgia area for the next 10 years; (2) are prohibited from opposing a Certificate of Need application for a general acute-care hospital in the Albany area for up to five years; and (3) stipulated that the effect of the transaction may be substantially to lessen competition within the relevant service and geographic markets alleged in the complaint.

Companies: Phoebe Putney Health System, Inc.; Hospital Authority of Albany-Dougherty County, Georgia; HCA Inc.; Palmyra Park Hospital, Inc.

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