The U.S. Federal Trade Commission has settled its long running
dispute with the Phoebe Putney Health System, Palmyra Park
Hospital, and the Hospital Authority of Albany-Dougherty County
over the Hospital Authority's acquisition of Palmyra in Albany,
Georgia. Memorialized in a consent decree, the settlement in
this merger challenge is unusual for what it does not include
– a requirement that the Hospital Authority divest
Palmyra. According to the FTC, Georgia's
certificate-of-need ("CON") law precludes a divestiture
of either hospital. And beyond that, the FTC chose not to seek
the sort of conduct remedies it has sought in a past consummated
case, such as separate health plan negotiation teams. The FTC
itself (correctly) describes this settlement as "highly
unusual."
Background
In April 2011, the FTC issued a complaint challenging the
Hospital Authority's acquisition of Palmyra. The FTC
alleged that Phoebe Putney and Palmyra were using the Hospital
Authority as a front for Phoebe Putney to acquire Palmyra without
antitrust scrutiny. According to the FTC, this was effectively
a merger of the two competing hospitals. The Hospital
Authority had no funds other than the $195 million advanced by
Phoebe Putney to complete the purchase, and Phoebe Putney would be
responsible for the day-to-day operations and strategic direction
of Palmyra after the transaction.
The FTC's complaint alleged that the transaction was
"essentially a merger-to-monopoly" as Phoebe Putney and
Palmyra were two of only three general acute-care hospitals in the
Albany area. The only other hospital in the area is a 25-bed
critical access hospital 31 miles away. Phoebe Putney and
Palmyra together have 86 percent of general acute-care hospital
services in the Albany area.
The district court granted the parties' motion to dismiss the
FTC's complaint. It held that the Hospital Authority was immune
from antitrust scrutiny under the state action doctrine, which
immunizes from federal antitrust challenge conduct that is
controlled by state regulation, and the Hospital Authority is a
state entity. The Eleventh Circuit affirmed this dismissal
and allowed the transaction to proceed. The parties completed
the merger in December 2011. The FTC appealed to the Supreme Court,
which in February 2013 unanimously reversed the Eleventh Circuit,
holding the state action defense did not apply. After the
Supreme Court's ruling, the FTC obtained a temporary
restraining order prohibiting any further integration of the two
hospitals. Subsequently, in June 2013, the parties agreed to
halt the integration pending the outcome of an administrative trial
on the merits, which was set to begin in early August.
FTC Consent Decree
The remedy is most notable not for what is in it, but what is
missing. The consent decree does not require a divestiture or even
impose any conduct remedy to address the alleged anticompetitive
effect of the combination. According to the FTC, it did not
seek a divestiture of Palmyra because it was powerless to do so
under the Georgia CON statute. The sale of Palmyra would require a
CON filing under Georgia law. But there is a surplus of
hospital beds under the law's definition of bed need, so no
buyer could prove unmet need in the Albany area that would justify
the issuance of a CON, the FTC concluded.
The consent decree does impose minor requirements to prevent the
parties from limiting future competition. The parties must (1)
stipulate that the transaction substantially lessened competition
for hospital services in Albany, (2) refrain from "objecting
to or providing negative comments about" any CON applications
for general-acute care hospitals, (3) submit any CON-related
objections to the FTC related to inpatient or outpatient clinic
facilities, and (4) provide prior notice to the FTC before
acquiring any a general acute-care hospital, inpatient or
outpatient facilities that provide any of the same services as the
parties, or controlling interest in any physician group practice of
five or more physicians.
The proposed settlement is subject to public comment through
September 23, 2013. After the public comment period, the FTC will
decide whether to make the proposed consent order final.
Implications
Although structural remedies have been and will continue to be
the default fix for horizontal mergers that lessen competition,
this case may signal that the FTC is tempering the agency's use
of conduct remedies. Both the FTC and Department of Justice have in
recent years welcomed the use of conduct remedies, as discussed in
prior alerts (see
June 2010 and
April 2013 Antitrust Alerts). And the FTC has
imposed a conduct remedy in the similar matter involving an
already-completed hospital merger. In settling its challenge
to the acquisition by Evanston Northwestern Healthcare of Highland
Park Hospital, the FTC in 2008 stopped short of requiring a full
divestiture. However, the FTC there did require that Evanston and
Highland Park maintain separate payor negotiation teams and
negotiate contracts with health plans independently of one another.
The FTC reported that it decided against a conduct remedy in the
Phoebe Putney case because such remedies are insufficient to
replicate premerger competition, involve monitoring costs, are
unlikely to address the loss of competition on quality, and may
dampen incentives to improve quality.
Without an acceptable structural or conduct remedy in such cases,
in the future the FTC may point to the Phoebe Putney case to
encourage judges to grant temporary restraining orders and
preliminary injunctions to preserve the status quo pending an
administrative trial on the merits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.