United States: FTC V. Phoebe Putney Health System, Inc., Et Al.

On February 19, 2013, the United States Supreme Court in Federal Trade Commission v. Phoebe Putney Health System, Inc., et al., unanimously rejected a Georgia state-sanctioned hospital authority's claim that its acquisition of a competing hospital was immune from antitrust scrutiny under the state-action doctrine, which the Supreme Court recognized in Parker v. Brown back in the 1940s. Under this doctrine, where a local government entity acts pursuant to a clearly articulated and affirmatively expressed state policy to displace competition, such action is exempt from the antitrust laws. The Court held that the hospital authority, a local government entity and a lesser political subdivision of the state, could not claim immunity because Georgia's Hospital Authorities Act did not clearly and affirmatively express an intent to displace the antitrust laws and allow anticompetitive hospital mergers. The Court reached this conclusion because anticompetitive consequences were not the "foreseeable result" flowing inherently, logically, or ordinarily from the general authority conferred by the state legislature on hospital authorities to acquire hospital facilities and related assets.

Background and Supreme Court Opinion

Two hospitals operate in Dougherty County, Georgia: Palmyra Medical Center ("Palmyra"), a private hospital, and Phoebe Putney Memorial Hospital ("Memorial"), a private nonprofit hospital owned by a local government hospital authority, Albany-Dougherty Hospital Authority ("Authority"). The two hospitals are located just two miles apart and together they allegedly account for 86 percent of the market for acute-care hospital services provided to commercial health care plans and their customers in a six-county radius. In the 1990s, the Authority formed a private non-profit subsidiary, Phoebe Putney Health System, Inc., ("PPHS"), to manage and operate Memorial. Under the arrangement with PPHS, the Authority leased Memorial to PPHS for $1 per year for 40 years. In 2010, PPHS entered into discussions with a private for profit hospital corporation, Hospital Corporation of America ("HCA"), about acquiring its subsidiary, Palmyra. After negotiating a deal with HCA, PPHS presented the Authority with a plan calling for the Authority to purchase Palmyra with PPHS-controlled funds and then lease Palmyra to a PPHS subsidiary for $1 per year under PPHS's present Memorial lease agreement with the Authority.

In response to this proposed acquisition, the Federal Trade Commission ("FTC") issued an administrative complaint, alleging that the transaction would create a virtual monopoly, and would substantially reduce competition in the market for acute-care hospital services, in violation of § 5 of the FTC Act. Shortly thereafter, the FTC and the State of Georgia filed suit against the Authority, PPHS, Palmyra, and HCA seeking to enjoin the transaction pending administrative proceedings. The Defendants filed a motion to dismiss, arguing that they had made the acquisition pursuant to powers granted to the Authority in its authorizing statute, and therefore qualified for immunity from antitrust scrutiny under the state-action doctrine. The FTC claimed that state-action doctrine did not apply, and further claimed that the transaction was actually an acquisition of a hospital from a private company, by a private company, and that the Authority was merely a "strawman" used solely to evade antitrust liability.

The United States District Court of the Middle District of Georgia granted the defendants' motion to dismiss, agreeing that the defendants were immune from antitrust liability under the state-action doctrine. The Eleventh Circuit affirmed. Although the Court of Appeals agreed with the FTC that the transaction would create a virtual monopoly, it affirmed the district court's conclusion that the state-action doctrine immunized the parties, because the Hospital Authorities Act expressly authorizes hospital authorities in Georgia to acquire hospitals, and that the legislature that passed the Act could have reasonably foreseen that certain acquisitions might narrow or even eliminate competition entirely in certain markets within Georgia. Because the Court dismissed the FTC's case at the motion to dismiss stage, the lower courts made no findings about whether the acquisition actually would lessen competition.

The Supreme Court's opinion holds that the state-action doctrine does not apply to a hospital authority's acquisition of a competing hospital under the Hospital Authorities Law. The Court based this holding on its ruling that the Hospital Authorities Law did not "clearly articulate" and "affirmatively express" a state policy to displace competition in the market for hospital services. The Court applied its two-prong test articulated in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc.: that the challenged conduct must (1) be clearly articulated and affirmatively expressed as state policy, and (2) be actively supervised by the State. Local government actors, such as the Authority, generally do not need to satisfy the active supervision prong of the Midcal test. But they still need to satisfy the "clear articulation" prong to establish state-action immunity. While the legislature does not need to state explicitly in a statute or its legislative history that it intends or expects the authorized activity to have anticompetitive effects, such effects must be the "foreseeable result" of whatever action the state authorized.

The Court concluded that while the Hospital Authorities Act authorizes the Authority to acquire other hospitals, it does not clearly articulate and affirmatively express a state policy empowering the Authority to engage in merger and acquisition activities that will substantially lessen competition. Unlike a state authority, a local governmental entity, like the Authority, must show that it has been delegated authority to act in an anticompetitive manner. Mere authority to act on its own is insufficient. The Court held that the Act did not delegate such authority to the Authority expressly, and that the anticompetitive effect of the Palmyra acquisition was not foreseeable. The Court analogized it to state statutes conferring general power on private corporations, which unquestionably do not extend state-action protection over any and all acts by a private corporation. The Court concluded that a general grant of authority to acquire other hospitals did not mean anticompetitive effects were the foreseeable result of such acquisition because "only a relatively small subset of the conduct permitted as a matter of state law . . . has the potential to negatively affect competition."

The Court remanded the case back to the lower courts for further proceedings.

Analysis

This case represents a significant victory for the FTC in two areas it has prioritized: the relaunch of its hospital enforcement efforts in the last few years, following a long absence after a series of significant defeats in the 1990s, and its efforts to narrow the scope of state-action immunity. In an October 2012 speech, former FTC Commissioner J. Thomas Rosch noted that the agency believed that state-action immunity had been impermissibly expanded due to federal courts applying the doctrine in circumstances where a state did not have a "deliberate and intended policy" to curtail competition in a particular area. Presumably, the FTC's victory here will lead the agency to take a more aggressive stance on hospital acquisitions, which have increased in anticipation of the Affordable Care Act.

The Supreme Court's decision cuts back on state-action protection for political subdivisions of states. Prior to this decision, state action arguably would extend to any conduct authorized by the state if anticompetitive acts were "reasonably foreseeable." But according to the Court, "a reasonable legislature's ability to anticipate that (potentially undesirable) possibility falls well short of clearly articulating an affirmative state policy to displace competition with a regulatory alternative." Pointing to its earlier state-action decisions, the Court suggested that, in the absence of an express articulation, a state espouses a policy to displace competition in favor of regulation only if anticompetitive consequences are the "inherent, logical, or ordinary result of the exercise of [the] authority delegated by the state legislature."

Unfortunately, the Court provided little guidance on how to determine whether anticompetitive consequences would inherently, logically, or ordinarily follow from authorized conduct. The opinion provides no practical approach for judging foreseeability. The cases cited in the decision to provide examples of situations meeting the foreseeability requirement do not help much in drawing a line between foreseeable and unforeseeable consequences. The Court, in essence, has set out a "we know it when we see it" approach.

The opinion suggests that merely anticipating some anticompetitive consequences in a small portion of events will not be enough to establish foreseeability. The Court seems to be steering towards a quantitative approach, which would require not just that authorized conduct was likely to result in anticompetitive consequences, but that it would do so in a substantial number of all cases. The ambiguity that remains regarding how to identify the circumstances in which anticompetitive effects would logically result from the authorized conduct will create uncertainty in circumstances in which a state does not expressly state its policy.

One thing is certain – the decision will make it more difficult for both local government actors and private parties to establish entitlement to state-action immunity.

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
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