WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on Nov. 26 heard
oral arguments regarding whether the state-action doctrine applied to immunize
a merger between two Georgia
hospitals from the Federal Trade Commission's challenge that the transaction
substantially lessened competition or tended to create a monopoly (Federal
Trade Commission v. Phoebe Putney Health System, Inc., et al., No. 11-1160,
U.S. Sup.; See November 2012) (lexis.com subscribers may access an enhanced version
11th Circuit opinion under review and the Supreme Court briefs for this case).
Arguing for the FTC, Assistant to the U.S. Solicitor
General Benjamin J. Horwich said that the 11th Circuit U.S. Court of Appeals
erred in ruling that the state-action doctrine immunized a merger between Phoebe Putney
which is a wholly owned subsidiary of Phoebe Putney Health Systems Inc. (PPHS),
and Palmyra Park Hospital Inc. The Hospital Authority of Albany/Dougherty
County approved the acquisition.
Horwich argued that by granting hospital authorities a
corporate power to acquire property in the Hospital Authorities Law, the
Georgia Legislature did not "clearly articulate . . . and affirmatively express
. . . an intent to displace competition" and, therefore, the state-action
doctrine did not provide a defense to the antitrust lawsuit.
Justice Sonia Sotomayor questioned whether "the grant of
powers in this case would permit the hospital authorities, the corporation, to
set prices for their services that are below the competitive prices in order to
serve the needy?" In response to Justice Antonin Scalia's question
whether an entity may be "a state actor for some anticompetitive purposes and
not for others," Horwich responded that the Supreme Court has held just that.
Horwich said there is a distinction between pricing
decisions and mergers. Chief Justice John G. Roberts Jr. commented that
"when this law was passed giving them the power to acquire hospitals, wasn't it
the case that there would likely be only on other hospital or two, so that any
acquisition of another hospital would have the merger consequences that this
Horwich commented that "[t]he point of this law is to
grant counties the opportunity to participate in this market by providing care
to indigents. This is not a law about public utility regulation."
Representing the respondents, Seth P. Waxman of Wilmer
Cutler Pickering Hale and Dorr in Washington argued that the Hospital
Authorities Law created local public authorities to "exercise public and essential
government functions to provide hospital care for residents, especially
residents who cannot pay" and that "the powers that the legislature has given
hospital authorities are not by any means general corporate powers. They
are broader than what a corporation may have in certain respects and much
narrower in other respects."
Justice Elena Kagan described the position of several
states that filed an amicus brief in the case as saying that "to
construe these very normal powers that we would give to a state entity in order
to allow it to operate as a permission to violate the antitrust laws is not at
all consistent with our own intentions."
Waxman responded that "[t]hese special purpose
authorities do not simply have general corporate powers. They have a
mandate. There is a Georgia
constitutional amendment that coincided with the enactment of the Hospital
Authorities Law that derogated the State's duty to provide indigent care to its
-- hospital care to its citizens."
Waxman argued that the state indicated that it made a
choice to allow hospital authorities to make anti-competitive purchases by "the
context of the law."
In rebuttal, Horwich said, "States always have some
purpose in mind when they set up some sub-State entity. The question
isn't whether there is particular ends the State is trying to pursue. The
question here is whether the State intended to pursue those ends through the
particular means of displacing competition, here, displacing competition in the
market for paid health care services."
In its Dec. 9, 2011, opinion, the 11th Circuit found that
the state "authorized the Authority's acquisition of Palmyra and, in doing so, clearly articulated
a policy to displace competition." The appeals panel concluded that the
"anticompetitive consequences were a foreseeable result of the statute
authorizing the Authority's conduct."
Through the Hospital Authorities Law, "the Georgia
legislature granted powers of impressive breadth to the hospital authorities,"
including the powers to "operate projects," including hospitals, to "construct,
reconstruct, improve, alter, and repair projects," to "establish rates and
charges for the services and use of the facilities of the authority," to "sue
and be sued," to "exchange, transfer, assign, pledge, mortgage, or dispose of
any real or personal property or interest therein" and to "borrow money for any
corporate purpose," the 11th Circuit said.
"Most important in this case, however, is the Georgia
legislature's grant of the power to 'acquire by purchase, lease, or otherwise .
. . projects,' . . . which, again, include hospitals, . . . and the power to
'lease . . . for operation by others any project.' . . . This grant makes
clear that the Authority is authorized to acquire and lease Palmyra. Moreover, in granting the
power to acquire hospitals, the legislature must have anticipated that such
acquisitions would produce anticompetitive effects. Foreseeably,
acquisitions could consolidate ownership of competing hospitals, eliminating
competition between them," the appeals court said.
The FTC is also represented by Solicitor General Donald
B. Verrilli Jr., Deputy Solicitor General Malcolm L. Stewart, Deputy Assistant
Attorney General Renata B. Hesse of the U.S. Department of Justice and General
Counsel Willard K. Tom, Deputy General Counsel for Litigation John F. Daly and
Attorneys Imad D. Abyad and Michele Arington of the FTC. All are in Washington.
The respondents are also represented by Edward C. DuMont
and Daniel P. Kearney Jr. of Wilmer Cutler in Washington
and Alan E. Schoenfeld of Wilmer Cutler in New York. The Hospital Authority is
also represented by James E. Reynolds Jr. of Perry & Walters in Albany, Ga.
PPMH and Palmyra are also represented by Thomas
S. Chambless of PPHS in Albany.
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