FTC seeks to narrow defense for antitrust exemptions through Ga. case
The Federal Trade Commission has gotten an opening to narrow states’ ability to shield public hospitals’ local monopolies from antitrust scrutiny now that the U.S. Supreme Court has granted oral arguments in its battle to block a $200 million hospital acquisition in southwest Georgia. A decision from the Supreme Court could affect not only the hundreds of hospitals around the country owned by cities, counties and other nonfederal political bodies, but also the physicians and insurance companies that strike contracts with them. Although mergers and business deals involving public hospitals may have legal exemptions from antitrust law, FTC officials want a narrower reading of that defense applied nationwide.
The high court on June 25 granted the FTC’S request for oral arguments on two objections it has to the acquisition of 102-bed Palmyra Medical Center in Albany, Ga., by the public owner of the only other hospital in town, 439-bed Phoebe Putney Memorial Hospital.
Palmyra was renamed Phoebe North and placed under the operational control of the private not-for-profit corporation Phoebe Putney Memorial Hospital after the transaction closed Dec. 15, 2011. However, the Albany-Dougherty County Hospital Authority is the legal owner of both hospitals.
Deals like the Phoebe Putney transaction may be shielded from antitrust review under Supreme Court precedent that gives state-created government bodies the right to displace market forces and take anticompetitive actions as long as the goals are clearly articulated by a state policy and actively supervised.
Antitrust officials say mounting evidence shows such deals may be damaging to consumers by decreasing competition and potentially raising prices—as they say was the case in Wichita Falls, Texas, where the state granted antitrust immunity in 1997 to allow the creation of United Regional Health Care System. United Regional eventually faced allegations from the U.S. Justice Department that it used dominant market position to charge high prices and exclude a competitor hospital from insurer networks. The hospital denied the allegations and settled the case in February 2011.
Experts say a decision in the Phoebe Putney case could affect antitrust review of not only hospital mergers, but also payer and physician contracts like those at issue in Wichita Falls and elsewhere across the country.
The main issue in the Phoebe Putney case is whether the Georgia Health Care Authorities Act clearly contemplated the creation of hospital monopolies when it allowed public hospitals to buy their competitors.
The court will also decide the more local issue of whether Phoebe Putney officials followed such a law, since the FTC alleges the hospital authority played only a small role in the merger negotiations and can’t oversee business operations. Phoebe Putney attorneys deny that, saying authority members oversaw the transaction and will monitor Phoebe Putney’s prices and healthcare access policies.
It hasn’t been an easy path to the Supreme Court so far for the FTC, which has twice lost in federal courts, including at the 11th U.S. Circuit Court of Appeals in Atlanta. But a Supreme Court ruling in the FTC’S favor would have the effect of applying the agency’s more limited view of the state action defense nationwide.
“If you accept our view that there is a split in the circuits and the Supreme Court were to clarify the law in a way that would conform more to our view than the 11th Circuit’s view, then it would have broader application, certainly, because it would become the law in every circuit,” FTC Competition Director Richard Feinstein said in an interview.
Robert Baudino, the Des Moines, Iowa-based healthcare attorney who has represented the hospital authority since 1988 and said he was instrumental in structuring the acquisition of Palmyra, said the 11th Circuit correctly interpreted the nuances of Georgia’s hospital authorities law. He said he even told FTC officials back in January 2011 that they had no chance of winning.
“The law has been settled. It has been well-settled for years,” Baudino said. “And the surprise is that the Federal Trade Commission is unable to accept the fact that the law is settled.”
David Marx, the attorney who heads the Chicago antitrust practice for Mcdermott Will & Emery, said that in general the FTC is eager to oppose the application of state action defenses that go against its power to review mergers, as evidenced by the conclusions of its 2003 task force report on state action defenses.
However, the Supreme Court’s decision to accept the case should not be interpreted to mean they are going to reverse the 11th Circuit. “I think the circuit court got it right,” Marx said. “This gives the Supreme Court the chance to refine and clarify the scope of the state action doctrine.”
Marx said the “optics” of the merger deal that created the monopoly made it an attractive case for the Supreme Court, including the FTC’S allegation that the private, not-for-profit operating company for Phoebe Putney essentially negotiated the business deal and then used the Albany-Dougherty Hospital Authority as a straw purchaser to shield it from antitrust review. “But I don’t think that those optics are going to lead the Supreme Court to reverse,” Marx said. “I believe the legislation is clear.”