United States: Supreme Court Unanimously Rules Unforeseeability Bars Immunity Defense For Allegedly Anticompetitive Hospital Merger

Last Updated: February 22 2013
Article by Bruce D. Sokler, Robert G. Kidwell and Farrah Short

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.

Background

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.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Bruce D. Sokler
Robert G. Kidwell
Similar Articles
Relevancy Powered by MondaqAI
Kilpatrick Townsend & Stockton LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Kilpatrick Townsend & Stockton LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions