FTC Proceeding Stayed in Georgia Hospital Acquisition Challenge

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

An FTC administrative challenge to Phoebe Putney Health System, Inc.’s proposed acquisition of rival Palmyra Park Hospital, Inc. in Albany, Georgia, was stayed by the Commission on July 15.

The respondents sought the stay pending the outcome of the FTC’s appeal of a federal district court’s dismissal of the agency’s court action. In the court action, the FTC sought preliminary injunctive relief against the acquisition until the administrative trial was resolved.

The FTC staff did not did not oppose the respondents’ motion for stay of the administrative challenge. The administrative law judge had recommended that the Commission grant the stay (CCH Trade Regulation Reporter ¶16,619).

In April, the FTC and the State of Georgia filed suits to block the deal that would allegedly create “a virtual monopoly for inpatient general acute care services sold to commercial health plans and their customers in Albany, Georgia and its surrounding area.”

State Action Immunity

Last month, the federal district court in Albany, Georgia, denied the request for a preliminary injunction and dismissed the suits (2011-1 Trade Cases ¶77,508). (See Trade Regulation Talk, June 30, 2011). The court ruled that the challenged transaction was state action immune from the antitrust laws. The FTC made a motion for an expedited appeal, which was granted by the U.S. Court of Appeals in Atlanta on July 7 (2011-1 Trade Cases ¶77,527).

In granting the stay of the administrative action, the Commission noted the respondents’ argument that “there was no benefit to undergoing the burdens and expense of continuing this administrative proceeding given the pendency of an appeal to the Eleventh Circuit in collateral federal court litigation on the `critical issue’ in the proceedings, namely state action immunity.”

The respondents asserted that the administrative proceeding could “resume with no prejudice” if the appellate court were to rule in the FTC’s favor.”

The administrative proceeding is In the Matter of Phoebe Putney Health System, Inc., Docket No. 9348. The July 15 order granting the respondents’ unopposed motion to stay the proceeding appears here. It will be reported at CCH Trade Regulation Reporter ¶16,620.

FTC, Georgia Denied Preliminary Injunction Blocking Hospital Acquisition

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Earlier this week, the federal district court in Albany, Georgia, denied a request from the Federal Trade Commission (FTC) and the State of Georgia for a preliminary injunction blocking a proposed hospital acquisition pending FTC administrative proceedings. The court ruled that the challenged transaction was state action immune from the antitrust laws.

In April, the FTC issued an administrative complaint challenging Phoebe Putney Health System, Inc.'s proposed acquisition of rival Palmyra Park Hospital, Inc. from HCA Inc. The FTC alleged that the proposed acquisition would create “a virtual monopoly for inpatient general acute care services sold to commercial health plans and their customers in Albany, Georgia and its surrounding area.” According to the FTC, the acquisition would eliminate competition between the only two hospitals in Albany and in Dougherty County.

The FTC and state alleged that the acquisition included three stages: (1) the local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA using Phoebe Putney’s money, (2) the hospital authority’s immediate provision of control of the hospital to Phoebe Putney under a management agreement, and (3) Phoebe Putney’s entry into a lease with the hospital authority to grant the local hospital operator managerial control of Palmyra Park Hospital’s assets for 40 years.

Scope of Transaction

The court began its analysis by defining the scope of the transaction under review. The court rejected the defendants’ contention that only the local hospital authority’s purchase of Palmyra Park Hospital’s assets was at issue. The defendants viewed the breadth of Clayton Act, Section 7 too narrowly. They maintained that the lease and its terms did not yet exist and had not even been negotiated. Moreover, the defendants argued that neither the putative lease nor the management agreement was alleged to have competitive impact beyond the acquisition of the subject hospital itself by the hospital authority. The court decided that the management agreement and lease should constitute a part of the acquisition subject to review.

State Action Immunity

The FTC contended that the private parties used the hospital authority as a “‘strawman’ in an attempt to shield an overtly anticompetitive transaction from antitrust scrutiny.” In order to obtain protection under state action immunity doctrine, the hospital authority had to establish action (1) by a political subdivision of the state, (2) undertaken pursuant to state statutes authorizing the challenged action, (3) the anticompetitive effects of which are reasonably foreseeable to the legislature based on the statutory power granted to the political subdivision.

It was undisputed that the authority was a political subdivision of the State of Georgia. In addition, the Georgia Code authorized the challenged conduct of acquiring and leasing hospital property for purposes of meeting the healthcare needs of the community. The court’s analysis hinged on the third element: whether the alleged suppression of competition was a reasonably foreseeable result of the conduct authorized and the powers granted to the hospital authority under Georgia law.

The court concluded that the conduct was reasonably foreseeable. When the legislature equipped a hospital authority with the broad power to lease a hospital to another (the lessee) and grant the lessee the right to operate said hospital, it contemplated that the lessee could have once been a competitor of the authority’s newly acquired and leased hospital, the court reasoned. Whether the hospital authority authorized the purchase of the hospital without considering, among other factors, the anticompetitive adverse effect of the acquisition on healthcare in the community was irrelevant.

Because the hospital authority was immune for its anticompetitive conduct, any actions taken by the private actors to prompt or engender that conduct was also immune. Phoebe Putney would not be able to exercise control over Palmyra Park Hospital operations independent of the hospital authority. Thus, the Palmyra Park Hospital’s actions in the transaction would be considered those of the hospital authority, which was entitled to immunity, the court concluded.

The June 27, 2011, decision in FTC v. Phoebe Putney Health System, Inc., Case No. 1:11-cv-58 (WLS), will appear at CCH 2011-1 Trade Cases ¶77,508.

FTC, Georgia Challenge Proposed Hospital Acquisition

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC has challenged a proposed hospital acquisition that allegedly “creates a virtual monopoly for inpatient general acute care services sold to commercial health plans and their customers in Albany, Georgia and its surrounding area.”

The Commission has filed an administrative complaint, alleging that Phoebe Putney Health System, Inc.’s proposed acquisition of rival Palmyra Park Hospital, Inc. from HCA will reduce competition and raise prices for general acute-care hospital services.

The FTC said in its April 20 announcement that its staff and the Attorney General of the State of Georgia intended to file a separate complaint in the federal district court in Albany, seeking an order to halt the proposed transaction pending the administrative adjudication.

“By eliminating vigorous competition between Phoebe and Palmyra, this merger to monopoly will cause consumers and employers in the Albany region to pay dramatically higher rates for vital health care services, and will likely reduce the quality and choice of services available in the community as well,” said FTC Bureau of Competition Director Richard Feinstein.

Phoebe operates a 443-bed hospital in Albany, which offers a full range of general acute care hospital services, as well as emergency care services, tertiary care services, and outpatient services.

Palmyra is a 248-bed acute care hospital in Albany that is owned by HCA—a for-profit health system that owns or operates 164 hospitals in 20 states and Great Britain. Palmyra provides general acute care services, including services in general surgery, non-invasive cardiology, gastroenterology, gynecology, oncology, pulmonary care, and urology.

Relevant Market

The agency contends that the relevant market in which to analyze the effects of the transaction is the market for inpatient general acute-care hospital services sold to commercial health plans. The alleged relevant geographic market is no broader than the six-county region consisting of Dougherty, Terrell, Lee, Worth, Baker, and Mitchell Counties in Georgia.

Hospitals outside the six-county area do not regard themselves are not meaningful competitors of Phoebe Putney or Palmyra for inpatient general acute care services, according to the FTC.

State Action Doctrine

The FTC also alleges that Phoebe structured the deal in a way that uses the Hospital Authority of Albany-Dougherty County, also a respondent, in an attempt to shield the anticompetitive acquisition from federal antitrust scrutiny under the “state action” doctrine.

According to the FTC’s complaint, rather than acting in the state’s interests, the hospital authority served only as a “strawman” in an attempt to shield an overtly anticompetitive transaction from antitrust scrutiny. The FTC contends that the hospital authority played no meaningful role in the transaction and that the state action doctrine cannot be used as a defense to Phoebe’s proposed acquisition of Palmyra.

The administrative complaint, In the Matter of Phoebe Putney Health System, Inc., Dkt. 9348, was released by the FTC on April 22. It will appear at CCH Trade Regulation Reporter ¶16,588.