United States: FTC Seeks Supreme Court Review Of "State Action" Immunity Decision Involving Public Hospital Authority

Last Updated: May 3 2012
Article by Jason M. Powers

In the August 2011 issue of Antitrust News & Notes, we reported on the district court decision in Federal Trade Commission v. Phoebe Putney Health System,1 a case in which a U.S. district court found that an alleged merger-to-monopoly involving a Georgia hospital authority facility and a nearby for-profit hospital was immune from antitrust scrutiny based on the state action doctrine. The Federal Trade Commission (FTC), now having lost its appeal of that decision at the Eleventh Circuit,2 has filed a petition for certiorari at the U.S. Supreme Court.

The case arose in Albany, Georgia, in a region served by only two hospitals. The larger is Phoebe Putney Memorial Hospital, a private nonprofit facility established decades ago by a local hospital district. Phoebe Putney's only significant rival was Palmyra Park Hospital, a smaller privately held for-profit acute care hospital. The FTC alleged that, after officials of the two hospitals initiated merger discussions, Phoebe Putney negotiators structured the planned transaction as an acquisition by the local hospital district, with the smaller hospital to be leased and managed by the larger one, to take advantage of state action immunity. The FTC contended that the hospital district, lacking any budget, paid staff, or practical ability to oversee the private hospitals, "rubber-stamped" the merger with no intention of regulating the combined entity in a manner intended to displace competition law. The district court, finding that it was "reasonably foreseeable" that Georgia's hospital authority law would allow hospital districts to acquire hospitals and displace competition, concluded that there was an articulated state policy sufficient to entitle the hospital authority to state action immunity from antitrust law. The Eleventh Circuit affirmed. The FTC has now petitioned the U.S. Supreme Court for a writ of certiorari.3

In the petition, the FTC argues that the "reasonable foreseeability" standard applied by the district court and the Eleventh Circuit would cause virtually any grant of general corporate powers to a public entity to be viewed as a legislative invitation to that entity to restrict competition through the exercise of its general powers, whether or not the state legislature intended for those powers to displace competition or to establish some regulatory scheme as an alternative to competition. By the FTC's reasoning, such grants of general powers by legislatures, even if they could be exercised in anti-competitive ways, should be seen as merely neutral pronouncements on the use of those powers in a manner that impacts competition, rather than the clearly articulated and affirmatively expressed legislative intent to displace competition that the Supreme Court has required in prior cases involving publicly-dictated, but privately-implemented restraints.4 The FTC concedes that the district court decision on "reasonable foreseeability" is based on long-standing Eleventh Circuit precedent, but argues that the Eleventh Circuit approach has been criticized by commentators and is at odds with decisions in four other circuits (the Fifth, Sixth, Ninth, and Tenth).

The FTC further contends that the hospital authority's inability to supervise the combined hospital entity and its lack of participation in the merger transaction disqualifies it from serving as a legitimately immunizing state actor under prior case doctrine. The agency argues that, absent such participation and ongoing supervision, any antitrustimmunizing quality provided by the participation of the hospital authority would be the equivalent of granting antitrust immunity by legislative fiat rather than displacing competition through a regulatory scheme deserving of respect on federalism grounds.

To support consideration of its petition, the FTC points out that nearly 20 percent of U.S. hospitals are owned by state and local governments, and the state action principles at issue in the case potentially impact the antitrust-immunizing powers of more than 35,000 special districts established by governments to provide power, water, education, sewage, and health services to the public. Regardless of the outcome, the case could have wide ranging impacts. It warrants continued attention.


1 Federal Trade Commission, et al. v. Phoebe Putney Health System, et al., 793 F. Supp. 2d 1356 (M.D. Ga. 2011).

2 Federal Trade Commission, et al. v. Phoebe Putney Health System, et al., 663 F.3d 1369 (11th Cir. 2011).

3 Petition for Writ of Certiorari, Federal Trade Commission, et al. v. Phoebe Putney Health System, et al., No. 11-1160 (U.S. March 23, 2012), 2012 WL 978177.

4 Cal. Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).

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