Supreme Court Rules Phoebe Putney’s Acquisition is Not Immune Under the State-Action Doctrine

Feb 21, 2013

On February 19, 2013, the U.S. Supreme Court unanimously reversed the U.S. Court of Appeals for the Eleventh Circuit’s decision in FTC v. Phoebe Putney Health System.1  The Eleventh Circuit had affirmed a district court ruling that Phoebe Putney Health System’s acquisition of Palmyra Medical Center was immune from FTC antitrust scrutiny under Georgia law.  In a decision penned by Justice Sonia Sotomayor, the Court, in its first application of the state-action doctrine to Section 7 of the Clayton Act, held that Georgia had not “clearly articulated and affirmatively expressed” a state policy of displacing the federal antitrust laws that would otherwise apply to Phoebe Putney’s planned acquisition of Palmyra Hospital.  As a result, the Supreme Court held that “state-action immunity” did not apply.2

Background

In 1941, Georgia enacted statutes to enable the State to take a more active role in Georgia’s market for health care services, including allowing state and local authorities to create “hospital authorities.”  Hospital authorities are generally 5- to 9-member boards that are appointed by the governing body of the county or municipality and are empowered to exercise certain broad governmental functions.3

Also in 1941, the city of Albany and Dougherty County formed the Hospital Authority of Albany-Dougherty County, which then acquired Phoebe Putney Memorial Hospital.  In 1971, Palmyra Medical Center (now operated by HCA, Inc.) was started in Dougherty County.  In the six counties surrounding Albany, Phoebe Putney and Palmyra accounted for 86 percent of the market for acute-care hospital services provided to commercial hospital plans.4

In 2010, the Hospital Authority approved Phoebe Putney’s acquisition of Palmyra.5  After reviewing the acquisition, the FTC issued an administrative complaint alleging that Phoebe Putney’s purchase of Palmyra would substantially lessen competition.6  The FTC and the State of Georgia sued the Hospital Authority, Phoebe Putney, and Palmyra in district court to enjoin the transaction pending resolution of the administrative hearing.7  The U.S. District Court for the Middle District of Georgia denied the FTC’s request for a preliminary injunction on the grounds that the acquisition was immune from antitrust liability under the state-action doctrine.8  On appeal, the Eleventh Circuit upheld the district court’s decision.9

Supreme Court’s Decision and Analysis

Under Parker v. Brown, state action that is anticompetitive is immune from Sherman Act attack.10  In other words, the Sherman Act is not intended to override legitimate actions of states even when those actions disturb private competition.  So for example, the Supreme Court has found state regulation that directly, or indirectly through a subordinate body, restricts competition through zoning ordinances, limitations on the geographic reach of city services, or encouragement of collective ratemaking by common carriers is immune to Sherman Act attack where the state “clear[ly] articulat[es]” its intent to displace competition.11

In this case, the Supreme Court seemed to narrow or tighten the circumstances under which state subdivisions could claim the state action immunity.12 The Supreme Court ruled that Georgia hospital authorities were not eligible for immunity from FTC antitrust scrutiny under the state-action doctrine, because the Georgia law permitting the creation of hospital authorities did not “clearly articulate[] and affirmatively express[]” a state policy displacing the federal antitrust laws.13  The Court rejected the Eleventh Circuit’s reasoning that the Georgia Legislature “‘must have anticipated’ that acquisitions by hospital authorities ‘would produce anticompetitive effects.’”14  The “clear articulation” test, though it does not require an explicit statement, can only be fulfilled where the displacement of competition was the “inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature.”15  The Georgia law did not meet this test, as the statute “[was] not principally concerned with hospital authorities’ ability to acquire multiple hospitals and consolidate their operations.”16

The Court justified its narrower approach to the clear-articulation test by explaining that, under this approach, “national policies embodied in the antitrust laws” would not be “displaced by state delegations of authority intended to achieve more limited ends.”17  Further, “loose application of the clear-articulation test would attach significant unintended consequences to States’ frequent delegations of corporate authority to local bodies” by reading antitrust exemptions into state delegations of authority where no such exemption was intended.18

The Supreme Court, “declin[ing] to set such a trap for unwary state legislatures” and finding that the Georgia law did not clearly articulate a policy of displacement of the federal antitrust laws, reversed the Court of Appeals’ ruling, held that the Phoebe Putney acquisition of Palmyra Hospital was not immune from FTC antitrust scrutiny under the state-action doctrine, and remanded the case for further proceedings.19

Implications

The Supreme Court’s ruling may affect antitrust jurisprudence in the following ways.

  • The decision will probably tighten the state-action immunity.
  • It will likely reduce the ability of sub-state entities such as municipalities, cities, and counties to protect hospital and health system mergers approved by those entities from antitrust scrutiny.
  • Finally, although the decision narrowly spoke to issues implicated in the Phoebe Putney-Palmyra transaction, the decision – with its affirmation of the national goal of promoting competition – could have implications for Accountable Care Organizations and other entities created in furtherance of the Affordable Care Act.

Conclusion

Although the Supreme Court’s decision pertains to the discrete subject of the state-action doctrine and may not have broad applicability across all aspects of antitrust law, it nevertheless represents a notable win for the FTC in a longstanding battle.  Consequently, it continues the FTC’s string of success in an area (hospital mergers) of particular focus in recent years. 


1   663 F.3d 1369 (11th Cir. 2011), overruled by FTC v. Phoebe Putney Health System, 568 U.S. __ (2013).
2  FTC v. Phoebe Putney Health System, 568 U.S. __, at *1 (2013).

3 Id. at 2.

4 Id. at 3.

5 Id.

6 Press Release, Fed. Trade Comm’n, FTC and Georgia Attorney General Challenge Phoebe Putney Health System’s Proposed Acquisition of Palmyra Park Hospital as Anticompetitive (Apr. 20, 2011), available at http://www.ftc.gov/opa/2011/04/phoebeputney.shtm.

7  Mot. for Prelim. Inj., FTC v. Phoebe Putney Health System, Inc., No. 1-11-cv-58 (M.D. Ga., Apr. 20, 2011).

8 FTC v. Phoebe Putney Health System, Inc., 792 F. Supp. 2d 1356 (M.D. Ga 2011).

9 FTC v. Phoebe Putney Health System, Inc., 663 F.3d 1369 (11th Cir. 2011).

10 317 U.S. 341, 352 (1943).

11 FTC v. Phoebe Putney Health System, 568 U.S. __, at *8-12 (2013); accord Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 373 (1991); Hallie v. Eau Claire, 471 U.S. 34, 46-47 (1985); Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 64, 65, and n. 25 (1985).

12 Id. at *7 (quoting FTC v. Ticor Title Ins. Co., 504 U.S. 621, 636 (1992), for proposition that “state-action immunity is disfavored, much as are repeals by implication”).

13 Id. at *19.

14 Id. at *11.

15 Id.

16 Id. at *14.

17 Id.

18 Id. at *18.

19 Id. at *18-19.

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