Georgia Hospital Combination Was Immune from FTC Challenge

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

The effective merger of two Georgia hospitals was immune under the state action doctrine from an FTC challenge, the U.S. Court of Appeals in Atlanta has ruled. Dismissal of the Commission’s complaint for injunctive relief pending the completion of an administrative proceeding (2011-1 Trade Cases ¶77,508) was affirmed.

In an April 2011 administrative complaint, the FTC alleged that a local hospital authority’s purchase of Palmyra Park Hospital’s assets from HCA, Inc. and subsequent lease to Phoebe Putney Health System, Inc.—the operator of Phoebe Putney Memorial Hospital—would substantially lessen competition or tend to create a monopoly in the inpatient general acute-care hospital services market in Georgia’s Dougherty County and surrounding areas.

The agency sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding.

The appellate court agreed with the Commission that the joint operation of the two Albany, Georgia, hospitals—Phoebe Putney Memorial Hospital and Palmyra Park Hospital—“would substantially lessen competition or tend to create, if not create, a monopoly.” However, the question was whether the anticompetitive conduct was immunized by the state-action doctrine.

The FTC 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.

The FTC contended that the private parties used the hospital authority to shield the transaction from antitrust scrutiny.

State Action Immunity

While the doctrine of state action immunity protects the states from liability under the federal antitrust laws, the same protection does not extend automatically to political subdivisions, such as the hospital authority, the appellate court explained.

In order for the hospital authority to enjoy state-action immunity, it had to show that the state generally authorized it to perform the challenged action and clearly articulated a state policy authorizing anticompetitive conduct.

The acquisition of Palmyra Park Hospital, Inc. from hospital operator HCA Inc. and its subsequent operation by Phoebe Putney Health System, Inc., at the behest of the Hospital Authority of Albany–Dougherty County, were “authorized pursuant to a clearly articulated state policy to displace competition, the court held.

Through the Hospital Authorities Law, the Georgia legislature clearly articulated a policy authorizing the displacement of competition. The Georgia legislature granted local hospital authorities the power to acquire hospitals. In granting the power to acquire hospitals, the legislature must have anticipated that such acquisitions would produce anticompetitive effects, the court reasoned. “Foreseeably, acquisitions could consolidate ownership of competing hospitals, eliminating competition between them.”

The appellate court rejected the Commission’s argument that it could dispose of the immunity issue because the plan at issue constituted only private action, since it was formulated by Phoebe Putney Health System and HCA, Inc. and presented by Phoebe Putney Health System to the hospital authority.

FTC Bureau of Competition Director’s Reaction

“The Eleventh Circuit agrees with the Commission that this deal will create a monopoly and eliminate competition,” said FTC Competition Bureau Director Richard Feinstein in response to the decision. “We remain very concerned that it will raise healthcare costs dramatically in Albany, Georgia. We are considering all our options.”

Details of the December 9, 2011, decision in FTC v. Phoebe Putney Health System, Inc., No. 11-12906, will appear in CCH Trade Regulation Reporter.

Tax Software Firms, Organization Partnering with IRS Were Immune from Antitrust Suits

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A group of private sector tax software companies and an organization that allied those companies in a free tax preparation and e-filing service partnership with the Internal Revenue Service (IRS) were protected under the implied immunity doctrine from claims asserted by a putative class of taxpayers and tax preparers that the companies and organization violated federal antitrust law by agreeing among themselves to limit their offering of free electronic-filing ("e-filing") services to the taxpayers, according to the U.S. Court of Appeals in Philadelphia. Dismissal of the claims was affirmed.

The claims originally had been dismissed at the federal district court level in 2008 (2008-1 Trade Cases ¶76,193). However, the plaintiffs were granted leave to amend their complaint on the basis that it might be possible for them to allege facts triggering an exception to conduct-based implied antitrust immunity that had been created by the Supreme Court in 1973. The plaintiffs did replead, attempting to invoke this exception, but their claims were again dismissed last year.

Conduct-Based Immunity

The defending companies and organization were entitled to conduct-based immunity because their allegedly anticompetitive conduct was compelled by the terms of the partnership agreement and appeared to be consistent with the IRS's policy regarding electronic tax preparation and filing, the appellate court decided.

Rejected was an argument that the conduct-based implied antitrust immunity was accorded to private parties like the defendants only when they were acting at the direction of a government agency and providing a government service. The specific nature of a private entity's conduct did not need to be the provision of a governmental function, provided the conduct was directed by a federal agency, pursuant to a defined government program or policy. Whether the particular activity in question was of a private or governmental nature was immaterial, the court noted.

Free to File” Partnership Agreement

It was clear that the IRS was statutorily authorized to enter into the "Free File" program partnership agreement with the defending companies and organization, and that the agreement and its accompanying Memorandum of Understanding explicitly required the defendants to restrict the availability of free electronic tax preparation and filing services under the program, the court explained.

The IRS's decision to limit the availability of free services under the Free File program was part of its ongoing attempt to achieve the statutory goal of increased e-filing through cooperation with the private sector.

Exception to Implied Immunity Doctrine

The implied immunity doctrine exception articulated by the Supreme Court in Otter Tail Power Co. v. United States (1973-1 Trade Cases ¶74,373) was inapplicable, the court added. That exception pertained only to cases in which (1) a private entity had insisted on anticompetitive restrictions in its contract with a government agency and (2) those restrictions hindered the government.


Allegations that the challenged output ceiling provisions in the partnership agreement were inserted at the defendants' insistence and hampered the IRS's ability to fulfill its goal of increasing electronic filing were directly refuted by the agency the following year, in the Management Response portion of a report issued by the Treasury Inspector General for Tax Administration analyzing the partnership agreement.

The decision is Byers v. Intuit Inc., 2010-1 Trade Cases ¶76,928.

Justice Department Suggests Modifications to Airline Alliance

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The Department of Justice has sent comments to the Department of Transportation, suggesting that an application of antitrust immunity for an airline alliance involving American Airlines, Inc., British Airways PLC, Iberia Lineas Aereas De Espana, S.A., and other carriers should be conditioned on “slot divestitures or carveouts, as appropriate.”

American, British Airways, and Iberia recently applied to the U.S. and European Union authorities for permission to cooperate more closely on transatlantic flights through the creation of a joint business agreement.

The “oneworld alliance” members have asserted that the benefits of the proposed agreements justify unrestricted immunity and that any carve-out would jeopardize the alliance.

According to the Justice Department's December 21, 2009, comments, a grant of unrestricted immunity would likely result in significant competitive harm in six transatlantic markets where American currently competes with British Airways and Iberia.

The Justice Department suggests that fares could increase by as much as 15 percent between six pairs of cities: (1) Boston and London, (2) Chicago and London, (3) Dallas and London, (4) Miami and London, (5) Miami and Madrid, and (6) New York and London.

Text of the comments of the Department of Justice appears here on the Antitrust Division’s web site.