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FTC Petitions for Rare Supreme Court Review of Hospital Acquisition

Written by Christi Braun, Matthew Cohen, and Bruce Sokler

Last week, the Solicitor General, at the request of the Federal Trade Commission (FTC), petitioned the U.S. Supreme Court to review a ruling of the Eleventh Circuit regarding the acquisition of Palmyra Park Hospital (Palmyra) in Albany, Georgia by Phoebe Putney Health System (PPHS).

In December 2010, PPHS presented the Hospital Authority of Albany-Dougherty County (Hospital Authority) with a plan to acquire Palmyra’s assets, including the hospital facility.  At that point, Phoebe Putney Memorial Hospital (Memorial Hospital) offered a full range of inpatient general acute care services in Albany and controlled 75% of the geographic market for these services.  Palmyra, the only real competitor of Putney, controlled 11% of the market.  The two entities had been active competitors, as was made evident in recent litigation.

By way of background, Georgia permits local governments to establish “hospital authorities” that can own and operate health facilities.   Until 1990, the Hospital Authority (of Albany-Doughtery) operated Memorial Hospital.  In 1990, the Hospital Authority leased the hospital to a subsidiary of PPHS, and PPHS has been running the hospital since that time.

In March 2011, after PPHS announced its plan to acquire Palmyra, the FTC filed a complaint in federal district court seeking to block PPHS's acquisition of Palmyra under the Clayton Act and FTC Act.  The FTC alleged at the time that the merger of the only two hospitals in Albany would reduce competition substantially and would allow the combined hospital entity to raise prices for general acute-care services charged to commercial health plans, harming patients and local employers and employees.  Crucially, the FTC also alleged that PPHS structured the deal in a way that uses the Hospital Authority in an attempt to shield the anticompetitive acquisition from federal antitrust scrutiny under the “state action” doctrine.

On December 9, 2011, the Eleventh Circuit affirmed a judgment of the district court dismissing the FTC’s complaint based on the state action doctrine.   The Eleventh Circuit opined that the Hospital Authority was a political “subdivision” and would enjoy state action immunity if, in part, the state had “clearly articulated” a policy authorizing the anticompetitive conduct.  According to the court, clear articulation was shown by the Hospital Authority’s power granted by the state to buy and sell property and that power made it “foreseeable” that a hospital authority might consolidate local hospitals in a way that would otherwise violate the federal antitrust laws.

If the Supreme Court agrees to hear the case, it will likely consider whether the Eleventh Circuit properly found a “clear articulation” of state policy to be satisfied when Georgia merely granted a municipal entity the right to buy and sell property.   The crux of the certiorari’s petition is that the Eleventh Circuit, in practical effect, eliminated the clear articulation component of the state action precedent by its “foreseeability” reasoning.

If the Eleventh Circuit decision is allowed to stand, the Court’s ruling will have wide implications on the future scope of the state action antitrust exemption.  The decision would likely make it more difficult to challenge activities of political subdivisions under the antitrust law.

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