Supreme Court Unanimously Rules Unforeseeability Bars Immunity Defense for Allegedly Anticompetitive Hospital Merger

by Mintz Levin

On February 19, 2013, the U.S. Supreme Court unanimously held that state-action immunity does not protect a state-created hospital authority from antitrust scrutiny over a proposed hospital merger where the anticompetitive effect of such merger was not a “foreseeable result” authorized by the state. FTC v. Phoebe Putney Health System, Inc., 568 U.S. ___ (2013). The proposed merger-to-monopoly between Phoebe Putney Health System, Inc. (“Phoebe Putney”) and Palmyra Park Hospital, Inc. (“Palmyra Park”) had been deemed protected by state-action immunity by both a district court and the U.S. Court of Appeals for the Eleventh Circuit. In overturning the lower courts, the Supreme Court considered whether the state law that created the hospital authority that owned Phoebe Putney “clearly articulate[d] and affirmatively express[ed] a state policy to permit acquisitions that substantially lessen competition.”

The Supreme Court decision clarifies and limits the foreseeability inquiry that has crept into state-action immunity analyses. Phoebe Putney is the first merger case to reach the Supreme Court since 1974, but the decision did not address substantive merger law matters. It was also the first hospital merger case that received any Supreme Court review; the Court’s analysis would seem to signal that hospital markets are correctly receiving full antitrust scrutiny.


Pursuant to a 1941 Georgia state law, political subdivisions in the state are permitted to provide health care services through municipal “hospital authorities.” Under the law, hospital authorities have the power “to acquire by purchase, lease, or otherwise and to operate projects.” Employing the state law, the City of Albany and Dougherty County established a hospital authority (“Authority”) that acquired Phoebe Putney Memorial Hospital (“Memorial”). In 1990, the Authority restructured its ownership of Memorial by forming a private nonprofit corporation, Phoebe Putney, which would lease Memorial from the Authority for $1 per year and would have exclusive power over the operation of the hospital.

In 2010, Phoebe Putney began merger discussions with Palmyra Park. Phoebe Putney and Palmyra Park own the only two hospitals in the Albany, Georgia area. Together, the two hospitals have 86 percent market share in the six counties surrounding Albany for the provision of acute-care hospital services provided to commercial health care plans. Following the negotiations with Palmyra Park, Phoebe Putney presented the proposed acquisition to the Authority with a plan for the Authority to purchase Palmyra Park and then lease it to Phoebe Putney for $1 per year. The Authority approved the proposed acquisition.

The Lower Courts’ Decisions

The Federal Trade Commission (“FTC”) issued an administrative complaint against the proposed transaction, alleging that it would result in a virtual monopoly and reduce competition. The FTC also filed suit to enjoin the transaction pending its administrative proceedings. The U.S. District Court for the Middle District of Georgia denied the request for a preliminary injunction and granted the hospitals’ motion to dismiss, holding that Phoebe Putney’s actions were immune from antitrust liability under the state-action doctrine. 793 F. Supp. 2d 1356 (M.D. Ga. 2011). Under the state-action immunity doctrine, a local governmental entity’s action pursuant to a “clearly articulated and affirmatively expressed state policy to displace competition” is exempt from federal antitrust law scrutiny.

On appeal, the U.S. Court of Appeals for the Eleventh Circuit affirmed. 663 F.3d 1369 (11th Cir. 2011). The Court of Appeals found that the Authority, as a local governmental entity, was entitled to state-action immunity if the challenged anticompetitive conduct was a “foreseeable result” of the state’s legislation. Noting the “impressive breadth” of powers given to hospital authorities under the state law, the Court of Appeals concluded that the anticompetitive result of the transaction was contemplated by the state law.

The Supreme Court’s Decision

In a unanimous decision written by Justice Sotomayor, the Supreme Court reversed and remanded, holding that the Court of Appeals “applied the concept of ‘foreseeability’… too loosely.” Setting the stage for its analysis, the Court noted that “state-action immunity is disfavored,” and thus it is only recognized “when it is clear that the challenged anticompetitive conduct is undertaken pursuant to a regulatory scheme that ‘is the State’s own.’” Relying on Community Communications Co. v. Boulder, the Court held that in deciding whether state-action immunity applies in a particular case, the local governmental entity’s challenged activity “must be undertaken pursuant to a ‘clearly articulated and affirmatively expressed’ state policy to displace competition.” 455 U.S. 40 (1982). Citing its “clear articulation test” from Hallie v. Eau Claire, the Court explained that “a state legislature need not ‘expressly state in a statute or its legislative history that the legislature intends for the delegated action to have anticompetitive effects…’ rather that… the anticompetitive effect was the ‘foreseeable result’ of what the [s]tate authorized.” 471 U.S. 34 (1985).

The Court found that there was no evidence that Georgia affirmatively contemplated an anticompetitive effect from hospital authorities consolidating hospital ownership. Acknowledging the acquisition and leasing powers granted to the Authority, the Court held that such “general powers” to act are “insufficient to establish state-action immunity; the substate governmental entity must also show that it has been delegated authority to act or regulate anticompetitively.” Responding to the lower courts’ reliance on the Authority’s power to acquire and lease hospitals, the Court stated that “we reject … the proposition that ‘the general grant of power to enact ordinances necessarily implies state authorization to enact specific anticompetitive ordinances’ because such an approach ‘would wholly eviscerate the concepts of clear articulation and affirmative expression that our precedents require.’”

Elaborating on its reasoning, the Court explained that while a legislature cannot “be expected to catalog all of the anticipated effects” of a statute delegating authority, “the [s]tate must have affirmatively contemplated the displacement of competition such that the challenged anticompetitive effects can be attributed to the state itself.” Thus, a state policy can only be found to displace federal antitrust law when such result is “the inherent, logical, or ordinary result of the exercise of authority delegated by the state.” Within the market for hospital services, the Court noted that “the power to acquire hospitals … does not ordinarily produce anticompetitive effects, [because it would] 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.”

The Court’s decision bolsters the antirust agencies’ enforcement efforts with respect to actions taken by political subdivisions by clarifying the scope of the state-action immunity. The case now will proceed to the merits of the FTC’s claim that the acquisition is anticompetitive.

Written by:

Mintz Levin

Mintz Levin on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.