Hospital Authority and Phoebe Putney Health System Settle FTC Charges That Acquisition of Palmyra Park Hospital Violated U.S. Antitrust Laws

The Hospital Authority of Albany-Dougherty County andPhoebe Putney Health System, Inc. have agreed to settle Federal Trade Commission charges that the acquisition ofPalmyra Park Hospital harmed hospital competition in six Georgia counties.  The proposed consent includes provisions to aid competition in these local health care markets, but due to the unique circumstances of the Certificate of Need (CON) laws in Georgia, the Commission is unable to require that the hospitals become independent competitors.

Divestiture, the Commission’s preferred remedy to restore competition lost due to an illegal merger, would trigger CON review.  Unfortunately, Albany is deemed “over-bedded” by Georgia’s strict need assessment criteria making it unlikely that any possible divestiture buyer could obtain the necessary CON approval to operate an independent hospital.  Under the proposed consent order, the Hospital Authority and Phoebe Putney will be required to give the FTC prior notice of future transactions, and will be barred from opposing certain applications by potential competitors seeking state certification to enter local health care markets. 

“The FTC’s efforts in this case produced a tremendous victory for consumers when the Supreme Court unanimously reined in overbroad application of state action immunity and allowed federal antitrust review of this merger,” said Deborah Feinstein, Director of the FTC’s Bureau of Competition.  “Regrettably, that legal victory will not undo the acquisition’s clear harm to competition.  Because divestiture is unavailable in light of Georgia’s strict certificate of need legislation, this proposed order is the most effective and efficient resolution that can be achieved at this time.”

The Complaint. The FTC’s administrative complaint, issued on April 20, 2011, alleged that the acquisition of Palmyra Park by the Hospital Authority and Phoebe Putney was essentially a merger to monopoly and would allow Phoebe Putney to raise prices for general acute-care hospital services charged to commercial health plans, as well as diminish healthcare quality and service, substantially harming patients and local employers and employees.  The complaint also alleged that Phoebe Putney was the main driver of the acquisition, having intentionally structured the deal in a way that involved the Hospital Authority as a “straw man” to shield the anticompetitive acquisition from federal antitrust scrutiny under the state action doctrine.  The state action doctrine immunizes from antitrust enforcement conduct that qualifies as an act of state government.  

In July 2011, the FTC stayed the administrative case pending resolution of federal court litigation regarding the applicability of state action immunity to the proposed acquisition. Ultimately, the Eleventh Circuit U.S. Court of Appeals ruled that state action immunity prevented federal antitrust review of the acquisition.  Following the decision, the parties consummated the acquisition on December 15, 2011.  Thereafter, the FTC sought and obtained certiorari from the U.S. Supreme Court, which issued a unanimous ruling in the FTC’s favor on February 19, 2013, holding that the acquisition was not subject to state action immunity. The Supreme Court's ruling clarifies the test for determining when state action immunity applies to anticompetitive actions by non-sovereign state actors, such as the Hospital Authority in this case.  The ruling has broad implications for antitrust enforcement in a variety of industries and contexts. 

On March 14, 2013, the Commission lifted its stay of administrative litigation and ordered a new date for trial before Chief Administrative Law Judge D. Michael Chappell.

The Proposed Settlement Order.  The Commission’s order does not require the divestiture of a hospital or other assets involved in the transaction because, even if the transaction were ruled anticompetitive after a full trial on the merits, it would not be feasible to restore the competition that was lost due to the legal and practical challenges presented by Georgia’s CON laws and regulations.  More information about Georgia’s CON laws and their implications in this case can be found in the analysis to aid public comment for this matter.

The proposed consent order announced today is designed to address through the most effective means available the FTC’s competitive concerns regarding the acquisition of Palmyra by the Hospital Authority and Phoebe Putney.  Its terms are acceptable to the Commission only under the unique circumstances present here, in particular the unavailability of divestiture or other structural relief.  Specifically, the order:

• requires the Hospital Authority and Phoebe Putney to give the Commission prior notice of any future transactions involving not only hospitals in the affected counties, but also other healthcare providers such as inpatient and outpatient facilities or physician practice groups.  Prior notice will allow the Commission to take steps to prevent potential anticompetitive effects of any future acquisitions before they are consummated, and
• prohibits the Hospital Authority and Phoebe Putney from opposing a CON application for a general acute-care hospital in the six-county area.  CON laws can act as a barrier to entry; the order provision ensures that the Hospital Authority and Phoebe Putney cannot impose additional costs on potential entrants by raising objections or filing negative comments in opposition to a pending application.

The order notes that the Hospital Authority and Phoebe Putney have stipulated that the effect of the consummated transaction may be substantially to lessen competition within the relevant service and geographic markets alleged in the Complaint. 

The Commission vote to accept the consent agreement package containing the proposed consent order for public comment was 3-0-1, with Commissioner Joshua D. Wright not participating.  The FTC will publish a description of the consent agreement package in the Federal Register shortly.  The agreement will be subject to public comment for 30 days, beginning today and continuing through September 23, 2013, after which the Commission will decide whether to make the proposed consent order final.  Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. 

Comments in paper form should be mailed or delivered to:  Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580.  The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.  Comments also can be submitted electronically.

NOTE:  The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.  Each violation of such an order may result in a civil penalty of up to $16,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., N.W., Room 7117, Washington, DC 20001. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.