Antitrust Alert: FTC Agrees To 'Unusual' Remedy In Georgia Hospital Merger

The U.S. Federal Trade Commission has settled its long running dispute with the Phoebe Putney Health System, Palmyra Park Hospital, and the Hospital Authority of Albany-Dougherty County over the Hospital Authority's acquisition of Palmyra in Albany, Georgia. Memorialized in a consent decree, the settlement in this merger challenge is unusual for what it does not include - a requirement that the Hospital Authority divest Palmyra. According to the FTC, Georgia's certificate-of-need ("CON") law precludes a divestiture of either hospital. And beyond that, the FTC chose not to seek the sort of conduct remedies it has sought in a past consummated case, such as separate health plan negotiation teams. The FTC itself (correctly) describes this settlement as "highly unusual."

Background

In April 2011, the FTC issued a complaint challenging the Hospital Authority's acquisition of Palmyra. The FTC alleged that Phoebe Putney and Palmyra were using the Hospital Authority as a front for Phoebe Putney to acquire Palmyra without antitrust scrutiny. According to the FTC, this was effectively a merger of the two competing hospitals. The Hospital Authority had no funds other than the $195 million advanced by Phoebe Putney to complete the purchase, and Phoebe Putney would be responsible for the day-to-day operations and strategic direction of Palmyra after the transaction. The FTC's complaint alleged that the transaction was "essentially a merger-to-monopoly" as Phoebe Putney and Palmyra were two of only three general acute-care hospitals in the Albany area. The only other hospital in the area is a 25-bed critical access hospital 31 miles away. Phoebe Putney and Palmyra together have 86 percent of general acute-care hospital services in the Albany area. The district court granted the parties' motion to dismiss the FTC's complaint. It held that the Hospital Authority was immune from antitrust scrutiny under the state action doctrine, which immunizes from federal antitrust challenge conduct that is controlled by state regulation, and the Hospital Authority is a state entity. The Eleventh Circuit affirmed this dismissal and allowed the transaction to proceed. The parties completed the merger in December 2011. The FTC appealed to the Supreme Court, which in February 2013 unanimously reversed the Eleventh Circuit, holding the state action defense did not apply. After the Supreme Court's ruling, the FTC obtained a temporary restraining order prohibiting any further...