On June 25, the United States Supreme Court granted a request by
the Federal Trade Commission (FTC) for review of the 11th
Circuit's decision in Federal Trade Commission v. Phoebe
Putney Health System. This case involves the FTC's failed
attempt to enjoin the merger of two southwest Georgia hospitals
– Phoebe Putney and Palmyra Medical Center – on
competitive grounds, and raises significant antitrust immunity
Significantly, as explained in the FTC's petition for
certiorari, the Eleventh Circuit rejected its claim despite
agreeing with the FTC that the transaction would likely lessen
competition for hospital services in Albany County. In reaching
this rather surprising result, the Eleventh Circuit held that
regardless of its potential competitive implications, the
transaction was immune from FTC challenge based upon the
"State Action Doctrine," a state sovereignty principle
that immunizes state entities from the antitrust laws when they act
pursuant to a "clearly articulated state policy" to
replace competition with regulation. The State Action Doctrine is
implicated in this case because the local Hospital Authority was
nominally the purchaser in the transaction (using Phoebe Putney
funds to pay Palmyra and then agreeing to lease Palmyra to Phoebe
Putney for a dollar a year for 40 years). For additional
details on the background of the case, please see the article by L.
Pahl Zinn and Christian G. Ohanian in the February, 2012 issue of
By taking the case, the Supreme Court will resolve a split among
the Circuits concerning what constitutes a "clearly
articulated and affirmatively expressed" state policy to
displace competition, as is required to trigger the application of
the State Action Doctrine.
When this case is argued, the FTC will cite rulings in the
Fifth, Sixth, Ninth and Tenth Circuits and will contend that a
state must create a regulatory structure that unambiguously
displaces "unfettered business freedom" with regulation
for the State Action Doctrine to apply, and that a position of
"neutrality" with respect to competition is insufficient.
Specifically, the FTC will argue that because "Georgia has no
affirmative policy of using hospital authorities to facilitate the
acquisition of monopoly power by private entities, as occurred
here," the requirements of the State Action Doctrine have not
In contrast, Phoebe Putney will likely contend that the Eleventh
Circuit's ruling that the "clear articulation" test
is satisfied whenever anticompetitive conduct is a
"foreseeable result" of state legislation is the proper
standard. As a result, the hospital system will agree with the
lower court's conclusion that the legislation that created the
hospital authority and that authorized it to acquire and lease
hospitals made the acquisition a "foreseeable"
occurrence, one that is outside the scope of FTC challenge even if
potentially harmful to competition. As the FTC noted in its
petition, "the application of the state action doctrine to
public hospitals is a recurring issue salient to communities across
the nation, and ensuring robust competition among hospitals is an
important part of the response to the fiscal challenges presented
by health care costs". As such, the Supreme Court's
decision in this case will likely be of great interest next term,
and once decided could have a far-reaching impact.
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