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 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.

FTC Granted Injunction Against Completed Hospital Acquisition

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

The FTC was entitled to an order preliminarily enjoining a not-for-profit health care delivery system controlling three hospitals in the area of Toledo, Ohio, from acquiring an additional hospital in the same county, the federal district court in Toledo has ruled.

The proposed combination could be presumed unlawful based on concentration thresholds, the court found. Largely on the strength of that conclusion, the court decided that a balancing of the equities favored injunction.

Because the acquisition had already been consummated when the agency launched its antitrust challenge to the deal in January, the court issued an order requiring the health care system to preserve the acquired hospital as a separate, independent competitor during the FTC's administrative proceeding and any subsequent appeals.

Market Concentration, Share

The Herfindahl-Hirschman Index levels--a mathematical/statistical tool used by the federal antitrust enforcement agencies to measure market concentration --and market shares of the parties far exceeded levels found to be unlawful by the U.S. Supreme Court and other courts.

Moreover, a duopoly, as in the inpatient obstetrical services market involved in the case, was presumptively unlawful in and of itself, the court noted.

Likelihood of Harm

The defending health care system failed to rebut adequately the presumption of likely harm resulting from the combination. It acknowledged that prices would increase significantly post-merger. No timely, likely, or sufficient entry or expansion in the relevant markets was forthcoming.

The defendant did not meet its burden of proving that its asserted deficiencies were verifiable, not attributable to reduced output of quality, merger-specific, and sufficient to outweigh the transaction's anticompetitive effects.

Rejected by the court were contentions that the hospital it acquired constituted either a failing firm or a flailing firm. Also unavailing were arguments that recent rate negotiations proved that the defendant would seek only reasonable price increases in the future and that the acquired hospital's prices were subcompetitive or otherwise unreasonable in some way.

Likelihood of Success, Public Interest

Preliminary injunctive relief had never been denied in an FTC enforcement action in which the agency demonstrated a likelihood of success on the merits, the court observed. The public interest in effective FTC enforcement was paramount. If the benefits of a merger were available after the trial on the merits, they did not constitute public equities weighing against a preliminary injunction.

Moreover, in a preliminary injunction action under Sec. 13(b) of the FTC Act, the agency was not required to show irreparable harm. Court-ordered relief was necessary to preserve the possibility of meaningful relief and to prevent interim harm, the court concluded.

FTC Deadline

The court said that it expected the FTC to act expeditiously in completing its action. At the American Bar Association Section of Antitrust Law Spring Meeting in Washington, D.C. on April 1, FTC Bureau of Competition Director Richard Feinstein pointed out that Judge Katz had given the agency a November 30 deadline. He noted that the trial in the matter was set to begin on May 31 but was not certain what actions Judge Katz would take if the matter was not completed by the deadline.

Chairman's Comments

FTC Chairman Jon Leibowitz told attendees of the ABA Antitrust Law Spring Meeting on April 1 that he was very pleased with the decision. Chairman Leibowitz mentioned that Judge Katz cited extensively to the Department of Justice/FTC Horizontal Merger Guidelines (CCH Trade Regulation Reporter ¶13,100).

In addition, Chairman Leibowitz noted that the decision is the first preliminary injunction win in an FTC hospital merger challenge since a federal district court in Missouri temporarily blocked the merger of the only two commercial hospitals in Poplar Bluffs, Missouri (1998-2 Trade Cases ¶72,227). That decision was reversed by the U.S. Court of Appeals in St. Louis (1999-2 Trade Cases ¶72,578), however, and the FTC eventually dismissed that matter.

The March 29 decision is FTC v. Promedica Health System, Inc., 2011-1 Trade Cases ¶77,395.