Supreme Court To Review 'State Action' Immunity In Hospital Case

The Supreme Court will address the scope of "state action" antitrust immunity as applied to a Federal Trade Commission (FTC) challenge of a merger between two hospitals in rural Georgia. Most recently in the April 2012 issue of Antitrust News & Notes, we reported that in Federal Trade Commission v. Phoebe Putney Health System,1 the Eleventh Circuit affirmed a U.S. district court's decision that an alleged merger-to-monopoly involving a Georgia hospital authority facility and a nearby for-profit hospital was immune from antitrust scrutiny based on the state action doctrine. Last week, the Supreme Court granted the FTC's petition for certiorari and will address (1) whether the Georgia legislature "clearly articulated and affirmatively expressed" a "state policy to displace competition" in the market for hospital services by vesting a local government entity with general corporate powers to acquire and lease out hospitals, and (2) even if the legislature clearly articulated such a state policy, whether that policy is sufficient to validate anticompetitive conduct in this case given that the local government entity did not actively participate in the terms of sale and fails to oversee the hospital's operation.

In this context, the state action doctrine provides that the federal antitrust laws do not apply to anticompetitive conduct of subordinate public entities created by a state if the conduct is authorized through a "state policy to displace competition" that is "clearly articulated and affirmatively expressed" by the legislature.2 This immunity extends to private entities if the private conduct is supervised by the state.3

Here, the FTC alleged that the merger between Phoebe Putney Memorial Hospital, a private non profit facility established by a local hospital district, and its only significant competitor, Palmyra Park Hospital, a privately held for-profit hospital, created an illegal monopoly. The FTC further alleged that the hospital district "rubber-stamped" the merger and lacked the intention and practical ability to oversee the private hospitals in a manner intended to displace competition law. In essence, the FTC argued this was a privately negotiated merger which was submitted to the state body to provide an appearance of state approval. While acknowledging the FTC's complaint properly alleges monopoly, the Eleventh Circuit found that Georgia law articulated a state policy sufficient to entitle the hospital authority to state action...