Antitrust Law Daily Wrap Up, TOP STORY—USSCt: High Court Rejects State Action Immunity for Georgia Hospital Merger in FTC Action, (Feb 19, 2013)

By Jeffrey May, J.D.

The U.S. Supreme Court today overturned a decision of the U.S. Court of Appeals in Atlanta, holding that the effective merger of two Georgia hospitals was immune under the state action doctrine from an FTC challenge. The appellate court's decision affirming dismissal of the FTC's complaint (663 F.3d 1369, 2011-2 Trade Cases ¶77,722) was reversed, and the case was remanded for further proceedings (FTC v. Phoebe Putney Health System, Inc., February 19, 2013, Sotomayor, S.).

According to the unanimous decision, authored by Justice Sonia Sotomayor, the appellate court, in deciding that the combination of the only two hospitals in Albany, Georgia, was authorized pursuant to a clearly articulated state policy to displace competition, “applied the concept of 'foreseeability' from our clear-articulation test too loosely.” In order for a substate entity, such as a local Georgia hospital authority, to be protected under the state action doctrine, it must have engaged in conduct that was foreseeable under a clearly articulated state policy.

Georgia’s Hospital Authorities Law, which grants local hospital authorities general corporate powers, including the power to acquire hospitals, did not clearly articulate and affirmatively express a policy to permit such authorities to make acquisitions that substantially lessened competition, according to the Court. Georgia's grant of general corporate powers to hospital authorities did not include permission to use those powers anticompetitively.

Thus, state action immunity did not shield the hospital authority because, as a substate entity, its conduct needed to be undertaken pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition. A substate governmental entity must also show that it has been delegated authority to act or regulate anticompetitively, the Court explained.

The FTC had brought an action against the Hospital Authority of Albany-Dougherty County, alleging that its purchase of Palmyra Park Hospital’s assets from HCA, Inc. and subsequent lease to Phoebe Putney Health System, Inc. (PPHS)—the operator of Phoebe Putney Memorial Hospital—would substantially lessen competition or tend to create a monopoly in the inpatient general acute-care hospital services market in Dougherty County and surrounding areas. The agency sought injunctive relief to prevent the consummation of the plan prior to the completion of the administrative proceeding.

The federal district court dismissed the complaint on state action immunity grounds (793 F. Supp. 2d 1356, 2011-1 Trade Cases ¶77,508), and the appellate court affirmed. The appellate court ruled that the local hospital authority, as a local governmental entity, was entitled to state action immunity because the acquisition was a foreseeable result of the state's Hospital Authorities Law. It reasoned that the Georgia legislature must have anticipated that the grant of power to hospital authorities to acquire and lease projects would produce anticompetitive effects. The Commission has stayed the administrative proceedings.

“[B]oth private parties and local governmental entities conceivably may transgress antitrust requirements by exercising their general powers in anticompetitive ways,” the Supreme Court noted. “But a reasonable legislature’s ability to anticipate that (potentially undesirable) possibility falls well short of clearly articulating an affirmative state policy to displace competition with a regulatory alternative.”

The Court went on to reject the respondents’ assertion that federal courts should err on the side of recognizing immunity to avoid improper interference with state policy choices. State action immunity is disfavored, the Court noted. Moreover, as “an amici brief filed by 20 States in support of the FTC contends, loose application of the clear articulation test would attach significant unintended consequences to States’ frequent delegations of corporate authority to local bodies, effectively requiring States to disclaim any intent to displace competition to avoid inadvertently authorizing anticompetitive conduct.”

The decision could lead some states to change their laws to clarify that a hospital authority’s “anticompetitive” acquisitions are part of a clearly articulated, affirmatively expressed state policy to displace competition.

FTC Chairman’s Response

“Today’s ruling is a big victory for consumers who want to see lower health care costs, and the Court’s opinion will ensure competition in a variety of other industries, as well,” said outgoing FTC Chairman Jon Leibowitz in response to the decision.

The case is No. 11–1160.

Attorneys: Seth Waxman (Wilmer Cutler Pickering Hale & Dorr LLP) for respondent. Benjamin J. Horwich, Department of Justice, for petitioner.

Companies: HCA, Inc.; Phoebe Putney Health System, Inc.

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