Rul­ing on Phoebe Put­ney deal may have wide­spread im­pli­ca­tions

Supreme Court says deal not ex­empt from an­titrust scru­tiny, may af­fect ACOs

Modern Healthcare - - NEWS - Beth Kutscher

In 2010, Phoebe Put­ney Health Sys­tem agreed to write a $195 mil­lion check to buy its smaller crosstown com­peti­tor in south­west Ge­or­gia, a fa­cil­ity with just over 100 beds. But the le­gal bat­tle with the Fed­eral Trade Com­mis­sion that en­sued—cul­mi­nat­ing last week with a U.S. Supreme Court rul­ing that the ac­qui­si­tion is not ex­empt from an­titrust scru­tiny—could have out­sized im­pli­ca­tions for other deals across the coun­try.

On its sur­face, the case in­volv­ing two health­care or­ga­ni­za­tions in Al­bany, Ga., turned on a le­gal is­sue that comes up rel­a­tively in­fre­quently with hospi­tal takeovers, given the unique own­er­ship struc­ture of Phoebe Put­ney. How­ever, it’s an is­sue that could re­ceive more at­ten­tion as states at­tempt to write reg­u­la­tions that will al­low them to shield Med­i­caid ac­count­able care or­ga­ni­za­tions from an­titrust scru­tiny.

Phoebe Put­ney, which ac­quired Palmyra Med­i­cal Cen­ter from hospi­tal gi­ant HCA, is a not-for-profit health sys­tem that op­er­ates pub­lic hos­pi­tals un­der a $1-a-year lease from the Al­bany-Dougherty Hospi­tal Author­ity. There­fore, its ar­gu­ment in front of the court turned on the scope of the “state ac­tion im­mu­nity doc­trine,” which gives states wide latitude to reg­u­late com­pe­ti­tion.

Since the author­ity is a state en­tity, the four-hospi­tal health sys­tem ar­gued, it is im­mune from fed­eral an­titrust scru­tiny.

How­ever, the high court pushed back on that line of rea­son­ing. Writ­ing for a unan­i­mous court, Jus­tice So­nia So­tomayor over­turned de­ci­sions from a district and an ap­peals court in her opin­ion that states must ex­pressly grant an­titrust im­mu­nity to lo­cal en­ti­ties.

The state of Ge­or­gia, she wrote, had not “clearly ar­tic­u­lated and af­fir­ma­tively ex­pressed a pol­icy to al­low hospi­tal au­thor­i­ties to make ac­qui­si­tions that sub­stan­tially lessen com­pe­ti­tion.”

The Phoebe Put­ney case was also unique, said Matthew Can­tor, an an­titrust at­tor­ney at law firm Constantine Can­non, be­cause the health sys­tem didn’t dis­pute that it would con­trol 86% of a six-county mar­ket af­ter the sale.

“No one is ques­tion­ing that this was cre­at­ing a mo­nop­oly,” Can­tor said. “The only rea­son this was even at­tempted was be­cause the 11th Cir­cuit had this ex­panded view (of the state ac­tion doc­trine.) The re­al­ity was the hospi­tal author­ity really wasn’t a state agency; it really was a pri­vate agency.”

Jay Levine, an an­titrust at­tor­ney at law firm Bradley Arant Boult Cum­mings, noted that the de­ci­sion no longer al­lows hospi­tal au­thor­i­ties to be used to cir­cum­vent an­titrust scru­tiny. “I don’t think you can have a knee­jerk re­ac­tion that the state said we can play in this mar­ket so there­fore we’re ex­empt,” Levine said.

For med­i­cal cen­ters con­cerned about lo­cal hospi­tal au­thor­i­ties gain­ing too much power through ac­qui­si­tions, this could be a wel­come re­sult, he said.

The state ac­tion doc­trine also has come into play in other ar­eas of health­care. For ex­am­ple, Can­tor pointed to a 2011 FTC de­ci­sion that found the North Carolina State Board of Dental Ex­am­in­ers couldn’t re­strict non­den­tists from per­form­ing teeth whiten­ing ser­vices.

And it also could af­fect Med­i­caid ACOs. “The state ac­tion doc­trine has been ex­panded, ex­panded, ex­panded to es­sen­tially im­mu­nize them,” Can­tor said. “The Supreme Court is go­ing to look a bit wary about stark anti-com­pet­i­tive be­hav­ior.”

But Tara Adams Ragone, a re­search fel­low and lec­turer at Se­ton Hall Univer­sity School of Law who has writ­ten about how to struc- ture Med­i­caid ACOs to avoid an­titrust scru­tiny, noted that the laws in New Jersey, New York, Ore­gon and Washington do state that they in­tend to au­tho­rize anti-com­pet­i­tive be­hav­ior.

“It doesn’t change things from my anal­y­sis,” she said about the Phoebe Put­ney de­ci­sion. Yet she added that states may have to re­view statutes that don’t con­tain that ex­plicit lan­guage.

The Phoebe Put­ney de­ci­sion also doesn’t ad­dress the sec­ond prong of the state ac­tion doc­trine, which re­quires states to ac­tively over­see the anti-com­pet­i­tive be­hav­ior. “That’s where there’s a lot of work to be done,” she said.

Ragone and Can­tor pointed out that it’s still un­clear whether the FTC and U.S. Jus­tice De­part­ment even in­tend to chal­lenge ACOs as anti-com­pet­i­tive. A clas­sic an­titrust case in­volves en­ti­ties col­lud­ing to fix prices—but the whole goal of an ACO is to re­duce costs.

For its part, Phoebe Put­ney, which has vowed to con­tinue its fight for Palmyra Med­i­cal Cen­ter, will re­turn to district court with one of its key de­fenses stripped away.

“I think there’s noth­ing much for us to do but fol­low the lit­i­ga­tion through its course,” said Thomas Cham­b­less, se­nior vice pres­i­dent and gen­eral coun­sel at Phoebe Put­ney Health Sys­tem. “We’ll fol­low the case as it trav­els and con­tinue to as­sert our po­si­tion.”

Cham­b­less em­pha­sized that there has never been a de­ci­sion about whether the takeover is anti-com­pet­i­tive. And, he stressed, “This is not an anti-com­pet­i­tive ac­qui­si­tion.”

Still, at­tor­neys fol­low­ing the case sug­gested that the health sys­tem may be forced to un­wind its deal, which closed in 2011.

Levine called the con­tin­ued fight an “up­hill bat­tle” and added that the FTC could re­quire Phoebe Put­ney to di­vest the fa­cil­ity, now known as Phoebe Put­ney Me­mo­rial Hospi­tal North Cam­pus.

“I think it’s go­ing to be al­most im­pos­si­ble, if not im­pos­si­ble, to get this through the courts,” Can­tor said. “What it means to me is that this trans­ac­tion will be de­railed.”

JEN­NIFER PARKS/THE AL­BANY HER­ALD

Phoebe Put­ney bought the con­tested hospi­tal, above, in 2010 for $195 mil­lion.

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