FTC Announces Proposed Settlement in Hospital Acquisition Case

by King & Spalding
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On August 22, 2013, the FTC announced a proposed settlement in its much-publicized case against one of the largest hospital systems in Southwest Georgia, and the proposed settlement is remarkable for what it will not do—it will not require any change in ownership of the hospitals at issue.  The case is In the Matter of Phoebe Putney Health System, Inc., Phoebe Putney Memorial Hospital, Inc., Phoebe North, Inc., HCA Inc., Palmyra Park Hospital, Inc., and Hospital Authority of Albany-Dougherty County, FTC File No. 111 0067, Docket No. 9348, and the proposed settlement is open for public comment through September 23, 2013. 

The FTC first filed its complaint in this case in April 2011, seeking to stop Phoebe Putney Hospital System, Inc. and its related entities (collectively, Phoebe Putney), as well as the Hospital Authority of Albany-Dougherty County (the Hospital Authority), from acquiring Palmyra Park Hospital, Inc. (Palmyra), the only other general acute care hospital in a six-county area and Phoebe Putney’s main competitor.  The FTC alleged that the acquisition would 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.”  But the U.S. District Court for the Middle District of Georgia denied the FTC’s effort to enjoin the transaction, holding that because the Hospital Authority owns Phoebe Putney, the acquisition was protected from antitrust scrutiny by the state action doctrine.  The Eleventh Circuit affirmed, although it also stated that “[w]e agree with the Commission that, on the facts alleged, the joint operation of [Phoebe Putney Memorial Hospital] and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.”  FTC v. Phoebe Putney Health Sys., Inc., 663 F.3d 1369, 1375 (11th Cir. 2011). 

The FTC then won a reversal in the Supreme Court, which held that the state action doctrine did not immunize Phoebe Putney’s acquisition of Palmyra from antitrust scrutiny.  FTC v. Phoebe Putney Health Sys., Inc., 133 S. Ct. 1003 (2013).  The Supreme Court held that here was no clearly articulated state policy authorizing conduct such as Phoebe Putney’s acquisition of the only other general, acute care hospital in the region, and that the State’s grant to Georgia hospital authorities of the power to acquire other hospitals was no different from similar powers granted to all corporations.  Id. at 1011-12, 1015.  As such, the granting of that power did not give the Hospital Authority, or Phoebe Putney, carte blanche to act in a manner that harms competition.  The Supreme Court thus reversed the Eleventh Circuit’s decision denying the FTC’s request for an injunction on state action immunity grounds.  But by that time Phoebe Putney had already completed its acquisition of Palmyra, and the Georgia Department of Community Health (DCH) had already granted Phoebe Putney a single operating license for both hospitals.

After the Supreme Court’s decision, the FTC renewed its administrative proceeding against Phoebe Putney and the Hospital Authority.  Given that the acquisition was already complete, it was unclear what type of remedy the FTC could pursue.

The proposed settlement announced on August 22 reveals just how limited the FTC’s options are in this case.  Not only has Phoebe Putney completed its acquisition of Palmyra, but because of Georgia’s Certificate of Need (CON) law—which, in the FTC’s words, creates “highly unusual” circumstances—the FTC is not in a position to force a divestiture.  The FTC describes the CON law’s restrictions in its Analysis of Proposed Agreement Containing Consent Order to Aid Public Comment, and the FTC specifically explains that:  “Georgia’s CON laws preclude the Commission from re-establishing the former Palmyra assets as a second competing hospital in Albany, because such relief would require: (1) the re-division of the single state-licensed hospital into two separate hospitals; and (2) the transfer of one of those hospitals from the Hospital Authority to a new owner.  Either one of those steps is independently sufficient to require CON approval from DCH, which . . . would not be forthcoming.”  The full analysis of the proposed settlement is available here

As a result of the CON law’s restrictions, the FTC’s proposed settlement puts only limited, prospective obligations on Phoebe Putney and the Hospital Authority.  Among other things, those obligations include:  (1) the obligation to notify the FTC before acquiring a controlling interest in certain types of healthcare facilities, including other general acute care hospitals, in a six-county area; (2) the obligation to refrain from objecting to, or submitting negative comments on, other entities’ CON applications, except in limited circumstances; and (3) the obligation to certify compliance with the settlement, on an annual basis.  All of the obligations included in the proposed settlement are described in further detail in the proposed settlement itself.  But regardless of what Phoebe Putney is required to do, or prevented from doing, in the future, it will likely claim a victory in this case.  Despite the FTC’s victory in the Supreme Court, Phoebe Putney managed to acquire its only true competitor in the region, to hold on to that hospital because of procedural roadblocks that Georgia’s CON laws create, and, thus, to retain its dominance in the local healthcare market.

Reporter, Christine A. Hopkinson, Atlanta, +1 404 572 3560, chopkinson@kslaw.com.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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