Merger Activities by Local Hospital Authority Not Immune From Antitrust Review

In Federal Trade Comm’n v. Phoebe Putney Health Sys., Inc., Case No. 11-1160 (decided Feb. 19, 2013), the United States Supreme Court ruled that the purchase of a hospital by a local public hospital authority in Georgia was subject to review under the federal antitrust laws.

The case involved the Hospital Authority of Albany-Dougherty County, which was created under Georgia’s Hospital Authorities Law.  The Authority operated one hospital in Albany, Georgia as a private, non-profit corporation.  The Authority entered into a contract to purchase a second hospital in Albany.  Together, the two hospitals accounted for 86% of the market for acute-care hospital services provided to commercial health care plans and their customers in the six counties surrounding Albany.  The Federal Trade Commission challenged the acquisition contending that it would have created a virtual monopoly and that it would have reduced competition in the market for acute-care hospital services in violation of federal antitrust law.  The lower courts had dismissed the complaint filed by the FTC, contending that the actions of the Hospital Authority were immune from federal antitrust laws under the “state action” doctrine.

Under the state action doctrine, federal antitrust laws cannot undermine the ability of states to impose restraints on the market as an act of government.  Federal antitrust laws cannot be applied to private actors if those private actors are carrying out a state’s regulatory program designed to limit or control competition.

The Supreme Court reversed the lower courts and held that the merger activities of the Authority were not immune from the federal antitrust laws.  For the state action doctrine to protect an action, the action taken must be pursuant to a “clearly articulated and affirmatively expressed state policy to displace competition.”  Opinion, p. 8.  The Supreme Court held that the actions of the Authority did not meet the “clear articulation” requirement.  Although Georgia’s statutes allowed for the creation of the Authority and endowed it with certain corporate powers, including the power to make contracts and lease property, nothing in the applicable statutes showed an intention to empower the Authority to act in an anticompetitive manner.  Those statutes did not articulate a state policy of reducing competition between hospitals.

This decision has considerable importance to local hospital authorities in Georgia and those that compete against them.  Markets for health care providers likely will undergo substantial change in the coming years.  Local hospital authorities will not enjoy any special protection from the antitrust laws as those changes occur.

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