FTC bat­tles state, backs off

Phoebe Put­ney al­lowed to keep Palmyra

Modern Healthcare - - THE WEEK IN HEALTHCARE - Gregg Blesch

The Fed­eral Trade Com­mis­sion may have won a bat­tle, but it lost the war over Phoebe Put­ney Health Sys­tem’s ex­pan­sion in south­west­ern Ge­or­gia. The out­come re­flects the le­gal tan­gle some­times faced by FTC an­titrust en­forcers as they strug­gle to con­vince state law­mak­ers of the un­in­tended con­se­quences of try­ing to tame hos­pi­tal con­struc­tion and du­pli­cate ser­vices with cer­tifi­cate-of-need laws.

Ear­lier this year, the FTC con­vinced the U.S. Supreme Court it had the power to chal­lenge Phoebe Put­ney’s ac­qui­si­tion of its only sig­nif­i­cant com­peti­tor in a six-county re­gion sur­round­ing Al­bany. But the state’s regime for reg­u­lat­ing the health­care busi­ness stymied the FTC’s am­bi­tion to un­wind the deal. A new owner, they con­ceded, would have to get a cer­tifi­cate of need—and state reg­u­la­tors would al­most cer­tainly deny one.

In a sur­prise turn­around, the fed­eral an­titrust en­forcers agreed last week to al­low Phoebe Put­ney to keep Palmyra Med­i­cal Cen­ter, a 102-bed fa­cil­ity that the not-for-profit sys­tem bought for $195 mil­lion from HCA in 2011. In the wake of the pur­chase, the sys­tem had con­sol­i­dated Palmyra and Phoebe Put­ney Me­mo­rial Hos­pi­tal un­der a sin­gle hos­pi­tal li­cense, cre­at­ing the need to get a new CON if the mar­riage was un­done.

Be­fore the re­treat on Phoebe Put­ney, the FTC had col­lected an im­pos­ing string of wins block­ing hos­pi­tal deals over the past few years.

In Ge­or­gia, the com­mis­sion set­tled for a con­sent or­der that at best will make com­pet­ing with Phoebe Put­ney a bit eas­ier. The sys­tem agreed to no­tify the FTC be­fore ac­quir­ing fa­cil­i­ties or physi­cian prac­tices in the next 10 years. The sys­tem also would be barred from chal­leng­ing other or­ga­ni­za­tions’ CON ap­pli­ca­tions, which can make it ex­tremely ex­pen­sive and time-con­sum­ing to en­ter a mar­ket or ex­pand ser­vices in the state.

How­ever, le­gal ob­servers say those mi­nor re­stric­tions are un­likely to lead to new com­pe­ti­tion in the re­gion. Dou­glas Ross, an an­titrust lawyer with Davis Wright Tre­maine, said Phoebe Put­ney has al­ready es­tab­lished dom­i­nance in the mar­ket and it’s un­likely that any new com­peti­tor would try to en­ter the area.

“What this does is show that a reg­u­la­tory cer­tifi­cate-of-need regime is at odds with the com­pet­i­tive mar­ket that the an­titrust laws are seek­ing to cre­ate,” Ross said.

Be­fore Phoebe Put­ney and HCA struck their deal, they had bat­tled in court over Palmyra’s ef­forts to get a CON to add an ob­stet­rics unit.

The FTC chose to fo­cus on its nar­row le­gal win. Deb­o­rah Fe­in­stein, the di­rec­tor of the FTC’s com­pe­ti­tion bureau, called the case a “tremen­dous vic­tory” be­cause of the fa­vor­able high court rul­ing re­jected “state-ac­tion im­mu­nity,” which Phoebe Put­ney had ar­gued should in­su­late the deal from fed­eral an­titrust laws. The only other hos­pi­tal in the re­gion is a 25-bed crit­i­cal-ac­cess fa­cil­ity about 30 miles away.

The trans­ac­tion was car­ried out through the Hos­pi­tal Au­thor­ity of Al­bany-Dougherty County, which op­er­ated Phoebe Put­ney un­til 1990 be­fore cre­at­ing a pri­vate not-for-profit com­pany to run the fa­cil­ity (it leases the as­sets for $1 a year). The au­thor­ity has no bud­get and no em­ploy­ees. The FTC de­scribed it as a “straw man” in the deal. In Fe­bru­ary, the Supreme Court ruled the hos­pi­tal au­thor­ity couldn’t claim an­titrust im­mu­nity as an agent of the state Leg­is­la­ture.

In the con­sent or­der, Phoebe Put­ney stip­u­lates that the ac­qui­si­tion may “sub­stan­tially” lessen com­pe­ti­tion. Yet it con­tin­ues to main­tain pub­licly that a big­ger Phoebe Put­ney will be good for con­sumers.

Thomas Cham­b­less, se­nior vice pres­i­dent and gen­eral coun­sel at Phoebe Put­ney, called the terms of the agree­ment an ac­cept­able res­o­lu­tion that would al­low the sys­tem to move for­ward with plans to add ser­vices at the north cam­pus that had been stalled un­der a re­strain­ing or­der im­posed af­ter the Supreme Court rul­ing. “We’d just as soon not have any­thing as a re­stric­tion on our busi­ness plan within the free mar­ket econ­omy that we have,” Cham­b­less said.

The FTC and some le­gal ob­servers main­tain the state’s CON law is pro­tect­ing Phoebe Put­ney from the wilds of the free-mar­ket econ­omy.

“Here is an as­tound­ing jux­ta­po­si­tion of CON reg­u­la­tion with an­titrust law. You end up with a sit­u­a­tion where you have one com­peti­tor in­stead of two, and it ap­pears the mar­ket would have sus­tained two,” Ross said. “Is that a good pol­icy re­sult?”

The con­sent or­der is sub­ject to pub­lic comment for 30 days be­fore the com­mis­sion makes it fi­nal.

“Here is an as­tound­ing jux­ta­po­si­tion of CON reg­u­la­tion with an­titrust law.”

— Dou­glas Ross, an­titrust lawyer

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