February 26, 2013 –
Supreme Court rules public hospitals not necessarily immune from federal antitrust laws

On February 19, the United States Supreme Court issued its unanimous opinion in Federal Trade Commission v. Phoebe Putney Health Systems, et al. The opinion relates to a public hospital’s purchase of its competitor public hospital.

At issue is the state-action immunity doctrine. The Supreme Court reviewed whether a local governmental entity’s actions are exempt from scrutiny under federal antitrust laws when the entity acts pursuant to a clearly articulated and affirmatively expressed state policy to displace competition.

The Supreme Court unanimously held that state-action immunity did not apply in these circumstances, and public hospitals could be subject to the same antitrust scrutiny as private corporations.

Gunster’s health law practice attorneys are closely monitoring this issue. Please contact Bruce Lamb or Fabienne Fahnestock to find out how this ruling may affect your facility.

The case

The Hospital Authority of Albany-Dougherty County (“Authority”) is a public hospital authority created by the Georgia legislature “to provide a mechanism for the operation and maintenance of needed health care facilities in the several counties and municipalities of th state.” The Authority owned Phoebe Putney Memorial Hospital (“Memorial”). In 1990, the Authority formed two private nonprofit corporations to manage Memorial: Phoebe Putney Health System, Inc. (“PPHS”), and its subsidiary, Phoebe Putney Memorial Hospital, Inc. (“PPMH”). The Authority leased Memorial to PPMH for $1 per year for 40 years.

Memorial is one of two hospitals in Dougherty County. Unlike Memorial, Palmyra Medical Center was operated by a national for-profit hospital network, HCA, Inc. (“HCA”). Together, the hospitals account for 86 percent of the market for acute-care hospital services in the six counties surrounding Albany.

In 2010, PPHS and HCA negotiated the sale of Palmyra to PPHS. The Authority approved the transaction. Shortly thereafter, the Federal Trade Commission issued an administrative complaint alleging that the proposed purchase and lease transaction would create a virtual monopoly and would substantially reduce competition in the market for acute-care hospital services.

The FTC and the state of Georgia subsequently filed suit against the Authority, HCA, Palmyra, PPHS, PPMH and the new PPHS subsidiary created to manage Palmyra, seeking to enjoin the transaction pending administrative proceedings.

The United States District Court for the Middle District of Georgia found that respondents are immune from antitrust liability under the state-action doctrine, denied the request for a preliminary injunction and granted respondents’ motion to dismiss. The United States Court of Appeals affirmed. The court found that the Authority was entitled to state-action immunity from antitrust liability because the anticompetitive conduct complained of was a foreseeable result of Georgia’s legislation.

The Supreme Court granted review on two questions:

The Supreme Court acknowledged that state-action immunity is recognized only when it is clear that the challenged anticompetitive conduct is undertaken pursuant to a regulatory scheme that “is the state’s own.” The Supreme Court employed a two-part test to determine whether the anticompetitive acts complained of in the lawsuit were entitled to state-action immunity. First, the court determined whether the challenged restraint was clearly articulated and affirmatively expressed as state policy. Next, the court looked at whether the policy was actively supervised by the state.

As to the first part of the test, the court recognized that the state legislature did not have to expressly state its intent for the delegated action to have anticompetitive effects in the statute or legislation. Rather, the court explained that state-action immunity applies if the anticompetitive effect was the “foreseeable result” of what the state authorized. It must be clear that the anticompetitive effects would logically result from the grant of authority.

In applying the law to this case, the court recognized that Georgia’s hospital authorities differed materially from private corporations that offered hospital services, but noted that there is nothing in the law establishing the Authority, nor is there any other provision of Georgia law that clearly articulates a state policy to allow authorities to exercise their general corporate powers, including their acquisition power, without regard to negative effects on competition.

The court found that the objective to improve access to health care does not logically suggest that the state intended that hospital authorities pursue that end through mergers that create monopolies.

The Supreme Court unanimously held that Georgia’s grant of general corporate powers to hospital authorities does not include permission to use those powers anticompetitively, and therefore state-action immunity did not apply.

The court concluded that the Georgia law that creates special-purpose public entities called hospital authorities and gives those entities general corporate powers, including the power to acquire hospitals, did not clearly articulate and affirmatively express a state policy to permit acquisitions that substantially lessen competition.