In FTC v. Phoebe Putney, the Supreme Court has
unanimously reversed the Eleventh Circuit holding that a Georgia
hospital authority's acquisition of a hospital was covered by
state-action immunity, emphasizing that "state-action immunity
is disfavored." The Supreme Court held that, as the
State had not clearly articulated and affirmatively expressed a
policy allowing the hospital authority to make acquisitions that
substantially lessen competition, state-action immunity does not
apply. The acquisition for which the hospital authority claimed
immunity would have given it an 86 percent market share for
acute-care hospital services provided to commercial health plans in
the area around Albany, Georgia.
In Justice Sotomayor's first antitrust opinion since joining
the Supreme Court, the Court concluded that the state-action
immunity defense fails under the clear-articulation standard
because there is no evidence the State affirmatively contemplated
that hospital authorities would use their power to
anticompetitively consolidate hospital ownership. Under the
state-action immunity doctrine, federal antitrust immunity may
extend to non-state actors carrying out a state regulatory program
intended to displace competition. Here, the Georgia legislature
granted specially created "hospital authorities" only
general corporate powers, including the power to acquire hospitals.
These hospital authorities may not operate or construct any project
for profit and could only set rates so as to cover operating
expenses and create reasonable reserves.
Approaching the clear-articulation standard practically, the Court
has previously held that, if displacement of competition was
"the inherent, logical, or ordinary result of the exercise of
authority delegated by the state legislature," then the
legislature has, in effect, clearly articulated a state policy to
displace competition even if the State has not expressly authorized
the anticompetitive conduct.
In Phoebe Putney, the Court held that the Eleventh Circuit
applied this forseeability standard too loosely. According to the
Eleventh Circuit, anticompetitive conduct is foreseeable if it
could have been "reasonably anticipated" by the state
legislature. The Court rejected this interpretation and clarified
that "the State must have foreseen and implicitly endorsed the
anticompetitive effects as consistent with its policy
goals."
The Court identified two of its prior cases as examples where
this formulation of the forseeability test was satisfied. First,
anticompetitive effects were a "logical" result in
Hallie v. Eau Claire, 471 U.S. 34 (1985), because the
state law authorized the "reasonable" (and
anticompetitive) "quid pro quo" of municipalities
conditioning extension of their sewer services on the surrounding
area's agreement to annexation. Second, the zoning ordinance in
Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365,
370 (1991), like all zoning ordinances, was "inherently"
anticompetitive because its "very purpose...is to displace
unfettered business freedom." In contrast, the acquisition and
leasing powers granted to the Phoebe Putney hospital authority
"mirror general powers routinely conferred by state law upon
private corporations" and such general powers "typically
are used in ways that raise no federal antitrust concerns." As
the Court quoted, "simple permission to play in the market
does not foreseeably entail permission to roughhouse in that market
unlawfully."
The Court rejected the respondents' argument, first expressed
by the Eleventh Circuit, that anticompetitive acquisitions were
foreseeable because of the existing market dynamics throughout
Georgia. The Eleventh Circuit had stated that "it defies
imagination to suppose the [state] legislature could have believed
that every geographic market in Georgia was so replete with
hospitals that authorizing acquisitions by the authorities could
have no serious anticompetitive consequences." According to
the Supreme Court, only a small subset of the conduct permitted by
the law has the potential to negatively affect competition. Indeed,
even the hospital authorities' power to acquire their first
hospital in a small market does not carry that potential
"because the transfer of ownership from private to public
hands does not increase market concentration." Rather, an
acquisition raises anticompetitive 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 competition" and the Court
determined that this "is too slender a reed" to support
the inference that the anticompetitive acquisitions were
contemplated by the law.
Finally, the Court rejected the argument that the grant of
"unique powers and responsibilities to fulfill the State's
objective of providing all residents with access to adequate and
affordable health care" cloaked the hospital authority in
immunity. The Court reasoned that "nothing in the Law or any
other provision of George law" suggests that "the State
intended that hospital authorities pursue that end through mergers
that create monopolies," even though the State imposes limits
on entry into the market for medical services and requires the
hospital authorities operate on a nonprofit basis.
The unanimous decision emphasizes that antitrust exemptions are
construed narrowly. If the State's policy does not clearly and
explicitly displace competition, then non-state actors must
carefully consider whether a proposed action pursuant to a
state's regulatory program would be protected.
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