Hospital Monopoly in Georgia Can’t Duck FTC

WASHINGTON (CN) - Georgia law does not bar federal regulation of local monopolies created by hospitals mergers, the U.S. Supreme Court ruled Tuesday.

Phoebe Putney Health System announced plans to merge with its largest local rival, HCA Inc.'s Palmyra Park Hospital, in 2010.

Under the plan, Phoebe would pay a hospital authority created by the city of Albany and county of Dougherty to acquire Palmyra Park. That authority would then contract the facility and its operation to Phoebe for $1 a year for 40 years.

The Federal Trade Commission and the Georgia attorney general balked at the apparent local monopoly, which they said would reduce competition in the acute-care hospital market and let Phoebe raise its rates.

But Phoebe and its partners claimed that that Georgia's Hospital Authorities Law permits the acquisition and operation of health care networks, even when such constructions result in monopolies.

Finding that the law gave broad powers to the authorities, and that legislators must have expected such powers would result in monopolies, a federal judge dismissed the FTC's complaint with prejudice. The 11th Circuit affirmed in December 2011.

The Supreme Court took up the case in June 2012 and reversed unanimously Tuesday, finding that the Georgia Legislature did not clearly articulate and affirmatively express a state policy to displace competition in the market for hospital services.

"Because Georgia's grant of general corporate powers to hospital authorities does not include permission to use those powers anticompetitively, we hold that the clear-articulation test is not satisfied and state action immunity does not apply," according to the decision written by Justice Sonia Sotomayor.

"In concluding otherwise, and specifically in reasoning that the Georgia Legislature 'must have anticipated' that acquisitions by hospital authorities 'would produce anticompetitive effects,' the Court of Appeals applied the concept of 'foreseeability' from our clear-articulation test too loosely," Sotomayor added.

The decision notes that empowering hospital acquisition does not necessarily produce anticompetitive effects.

"While subsequent acquisitions by authorities have the potential to reduce competition, they will raise federal antitrust concerns only in markets that are large enough to support more than one hospital but sufficiently small that the merger of competitors would lead to a significant increase in market concentration," Sotomayor wrote. "This is too slender a reed to support the Court of Appeals' and respondents' inference."

The decision also notes how 20 states supporting FTC action argued that loose standards "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."

"We decline to set such a trap for unwary state legislatures," Sotomayor concluded.

The court declined to address whether the authority has state action immunity because of its minimal participation in negotiating the terms of the sale of Palymra and its limited supervision of the two hospitals' operation.

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