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
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.
2 Federal Trade Commission, et al. v. Phoebe Putney
Health System, et al., 663 F.3d 1369 (11th Cir.
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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Hospitals considering future acquisitions of physician groups, and those that the Federal Trade Commission may view as having failed to make good on promises to improve care without hiking prices, better take notice.