WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on
Feb. 19 ruled that the state-action doctrine does not immunize the merger
between two Georgia hospitals from the Federal Trade Commission's challenge
that the transaction substantially lessened competition in the market for
hospital services or tended to create a monopoly because Georgia did not
clearly articulate and affirmatively express a policy allowing hospital
authorities to make acquisitions that substantially lessen competition (Federal
Trade Commission v. Phoebe Putney Health System, Inc., et al., No. 11-1160,
U.S. Sup.; See December 2012) (lexis.com subscribers may access Supreme Court briefs and the opinion for this case).
Writing for the unanimous court, Justice Sonia Sotomayor
said that in finding that state-action immunity applied because
"anticompetitive consequences were a foreseeable result" of Georgia's
Hospital Authorities Law, the 11th Circuit U.S. Court of Appeals applied the
concept of "foreseeability" too loosely.
The law, which creates hospital authorities and grants
general corporate powers, including the power to acquire hospitals, to the
hospital authorities, "does not include permission to use those powers
anticompetitively." Therefore, the state-action immunity doctrine, which
exempts a local government entity's acts pursuant to a clearly articulated and
affirmatively expressed state policy to displace competition from antitrust
scrutiny, does not apply, the Supreme Court ruled.
Preliminary Injunction Sought
The FTC challenged Phoebe Putney
(PPMH) proposed acquisition of Palmyra Park Hospital Inc. Palmyra, a for-profit
institution, is the largest and chief competitor of PPMH for acute-care
services in the region. PPMH, a not-for-profit hospital, is a wholly
owned subsidiary of Phoebe Putney Health Systems Inc. (PPHS). PPMH's
assets are owned by the Hospital Authority of Albany/Dougherty County, which
leases the assets to PPMH on a long-term basis but has no control over PPMH's
The acquisition plan, which provided that PPHS would
assets and would lease those assets to PPHS or a nonprofit PPHS subsidiary, was
approved by the Hospital Authority.
The FTC alleged that the deal would substantially lessen
competition or tend to create a monopoly in the inpatient general acute-care
hospital services market in Dougherty
County and surrounding
areas in violation of Section 7 of the Clayton Act and Section 5 of the Federal
Trade Commission Act. The FTC sought a preliminary injunction against the
Hospital Authority, PPMH and Palmyra.
The U.S. District Court for the Middle District of
Georgia granted the defendants' motion to dismiss the FTC's complaint, holding
that the state-action doctrine immunized the defendants from antitrust
In affirming, the 11th Circuit found that the Georgia
Legislature granted "powers of impressive breadth to the hospital authorities,"
including the powers to acquire and lease hospitals. The appeals court
reasoned that the Georgia Legislature "must have anticipated that such acquisitions
would produce anticompetitive effects. Foreseeably, acquisitions could
consolidate ownership of competing hospitals, eliminating competition between
The Supreme Court ruled that the clear articulation test
of the state-action doctrine was not satisfied because
the suppression of competition in the hospital-services market was not the
foreseeable result of Georgia's
statute permitting the consolidation of hospital ownership.
"The acquisition and leasing powers exercised by the
Authority in the challenged transaction, which were the principal powers relied
upon by the Court of Appeals in finding state-action immunity, . . . mirror
general powers routinely conferred by state law upon private
corporations. Other powers possessed by hospital authorities that the
Court of Appeals characterized as having 'impressive breadth,' . . . also fit
this pattern, including the ability to make and execute contracts, . . . to set
rates for services, . . . to sue and be sued, . . . to borrow money, . . . and
the residual authority to exercise any or all powers possessed by private
corporations," the court said.
Justice Sotomayor said "[o]ur case law makes clear that state-law
authority to act is insufficient to establish state-action immunity; the
substate governmental entity must also show that it has been delegated
authority to act or regulate anticompetitively."
"When a State grants some entity general power to act,
whether it is a private corporation or a public entity like the Authority, it
does so against the backdrop of federal antitrust law," the court explained.
In rejecting the 11th Circuit's reasoning that
anti-competitive effects were foreseeable because "[t]he legislature could
hardly have thought that Georgia's more rural markets could support so many
hospitals that acquisitions by an authority would not harm competition," the
Supreme Court noted that "only a relatively small subset of the conduct
permitted by the law had the potential to negatively affect competition."
Moreover, "the transfer of ownership from private to
public hands does not increase market concentration" and, therefore, "the power
to acquire hospitals still does not ordinarily produce anticompetitive
effects," the court said.
"While subsequent acquisitions by authorities have the
potential to reduce competition, they will raise federal antitrust concerns
only in markets that are large enough to support more than one hospital but
sufficiently small that the merger of competitors would lead to a significant
increase in market concentration. This is too slender a reed to support
the Court of Appeals' and respondents' inference," the court said.
"The state legislature's objective of improving access to
affordable health care does not logically suggest that the State intended that
hospital authorities pursue that end through mergers that create
monopolies. Nor do the restrictions imposed on hospital authorities,
including the requirement that they operate on a nonprofit basis, reveal such a
policy. Particularly in light of our national policy favoring
competition, these restrictions should be read to reflect more modest
aims. The legislature may have viewed profit generation as incompatible
with its goal of providing care for the indigent sick. In addition, the
legislature may have believed that some hospital authorities would operate in
markets with characteristics of natural monopolies, in which case the
legislature could not rely on competition to control prices," the court said.
briefs in support of the FTC had been filed by American Antitrust Institute
(AAI); Joseph Stubbs, M.D., and Dr. Corleen Thompson; 20 states and
commonwealths - Illinois, Arizona, California, Colorado, Connecticut, Delaware,
Hawaii, Idaho, Maryland, Michigan, Minnesota, Nevada, New Hampshire, New
Mexico, New York, North Carolina, Oregon, Pennsylvania, Tennessee and West
Virginia; economics professors; and National Federation of Independent Business
The American Medical Association and the Medical
Association of Georgia (AMA) filed a brief in support of neither party.
Amicus briefs in support of the
respondents have been filed by Lee Memorial Health System; American Hospital
Association and Georgia Hospital Association; and Georgia Alliance of Community
Hospitals Inc. and National Association of Public Hospitals and Health Systems.
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 and Assistant to the U.S. Solicitor General
Benjamin J. Horwich 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 Seth P. Waxman,
Edward C. DuMont and Daniel P. Kearney Jr. of Wilmer Cutler Pickering Hale and
Dorr 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.
Economics professors are represented by Bernard S. Black
of Northwestern University School of Law in Chicago. AAI is represented by Richard
M. Brunell of AAI in Washington.
Stubbs and Thompson are represented by Kermit S. Dorough Jr. of Albany. The states
are represented by Attorney General of Illinois Lisa Madigan, Solicitor General
Michael A. Scodro and Deputy Solicitor General Jane Elinor Notz in Chicago. NFIB is
represented by Jarod M. Bona of DLA Piper in Minneapolis. AMA is represented by Jack
R. Bierig of Sidley Austin in Chicago.
Lee Memorial Health System, American Hospital Association and Georgia Hospital
Association are represented by Beth Heifetz of Jones Day in Washington. Georgia Alliance of
Community Hospitals and National Association of Public Hospitals and Health
Systems are represented by John H. Parker Jr. of Parker Hudgson Rainer &
Dobbs in Atlanta.
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