FTC seeks to nar­row de­fense for an­titrust ex­emp­tions through Ga. case

Modern Healthcare - - CONTENTS - Joe Carl­son

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.”

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