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FTC, GA Challenge 'Anticompetitive' Phoebe/Palmyra Acquisition

 |  By John Commins  
   April 21, 2011

The Federal Trade Commission and the Georgia Attorney General's Office jointly announced Wednesday that they are challenging as anticompetitive Phoebe Putney Health System, Inc.'s proposed $195 million acquisition of rival Palmyra Park Hospital, in Albany, GA from HCA.

In a complaint filed this week in U.S. District Court in Albany, the FTC and the Georgia AG also allege that Phoebe Putney constructed an elaborate scheme that used the Hospital Authority of Albany-Dougherty County, GA as a "straw man" to "cloak private, anticompetitive activity in governmental guise in the hopes that it would exempt the acquisition from federal antitrust law."

The Georgia AG and the FTC want a federal judge to delay the acquisition until the conclusion of the FTC's administrative proceeding and any subsequent appeals, the FTC and the Georgia Attorney General's Office said in a joint statement.

"We have challenged this transaction for one very simple reason," said Richard Feinstein, Director of the FTC's Bureau of Competition, in a media release. "By eliminating vigorous competition between Phoebe and Palmyra, this merger to monopoly will cause consumers and employers in the Albany region to pay dramatically higher rates for vital healthcare services, and will likely reduce the quality and choice of services available in the community as well."

Besides Phoebe and Palmyra, there is one other independently owned hospital within the six-county area around Albany. The merger would give Phoebe more than 85% of the market. By eliminating the direct and substantial competition between Phoebe and Palmyra, the transaction would give Phoebe the ability and incentive to increase reimbursement rates charged to commercial health plans and their members, leading to higher healthcare costs, the complaint said.

In addition, the complaint claimed that the deal will adversely impact the quality and breadth of services available in the Albany area. Phoebe and Palmyra have competed for patients in the general acute-care hospital services market. That competition has spurred each to increase the quality of its patient care; this "non-price" competition would be eliminated by the acquisition, the complaint said.

Phoebe's board approved a recommendation from its management that it make a formal offer to HCA for Palmyra on Oct. 7, 2010. However, instead of directly approaching HCA with its offer, Phoebe developed a plan under which the Authority would acquire Palmyra and then lease it to a non-profit corporation controlled by Phoebe.

The FTC contends this structure was arranged by Phoebe to avoid federal antitrust scrutiny. On Nov. 16, Phoebe made a formal offer to HCA for Palmyra, an offer that was not reviewed by the Authority. On Dec. 2, 2010, Phoebe's board approved the final terms of the deal, but the transaction still had not been presented to the Authority. The deal was presented to the Authority for the first time at a special meeting held on Dec. 21, 2010. At that meeting, the Authority approved the deal that would give Phoebe control over Palmyra immediately after the deal was closed, the complaint states.

Federal and state officials said they expect Phoebe, the Authority, and HCA to argue that the transaction is exempt from federal antitrust liability under the "state action" doctrine – which provides an exception for anticompetitive conduct if it is an act of government. In this case, the complaint alleges, the transaction was motivated and planned exclusively by Phoebe, acting in its own private interests.

And, rather than acting in the State of Georgia's interests, the complaint alleges that the Authority was a "straw man" used to shield an "overtly anticompetitive transaction from antitrust scrutiny." Even though it had no independent analysis of the deal, the Authority committed $195 million to the purchase without considering the adverse effects the deal would have on healthcare prices in the area, and played no supervisory role in connection with the transaction, the complaint states. The complaint states that since at least 1990, the Authority has not actively supervised Phoebe in any way, and has made no effort to review any of the hospital's recent price increases. Thus the "state action" doctrine cannot be used as a defense, the complaint alleges.

The FTC voted 5-0 to issue the administrative complaint and authorize staff to file a complaint for preliminary injunction in federal district court. The evidentiary hearing is scheduled before an administrative law judge at the FTC on Sept. 19.

In a statement issued late Wednesday, an HCA / Palmyra Medical Center spokesman said, "We are aware of the filing, and are awaiting judge’s decision."

Joel Wernick, President and CEO of Phoebe Putney Health System said in a statement, "In response to the FTC filing, we are currently awaiting the judge’s decision. The Hospital Authority of Albany-Dougherty County and Phoebe have cooperated 110% with FTC requests for information. The FTC’s attempt to block this transaction is disheartening because we remain confident, especially with the increasing demand for collaboration in health care delivery, this transaction will benefit the health of the citizens in our community."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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