Hospital Mergers Unlikely to be Affected by Antitrust Ruling

A unanimous U.S. Supreme Court ruling this week that makes it harder for local hospital authorities to claim immunity from federal antitrust laws will likely have little practical effect on most hospitals mergers taking place across the nation, observers say.

In a running two-year old legal battle, the Federal Trade Commission challenged as anticompetitive Phoebe Putney Health System, Inc.'s proposed $195 million acquisition of rival Palmyra Park Hospital, in Albany, GA from HCA.

The FTC alleged 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."

In June, 2011 a federal district judge ruled that the PPHS was immune from federal antitrust liability under the FTC Act and the Clayton Act. The FTC appealed the ruling to the 11th Circuit Court of Appeals but lost again.

On Tuesday, however, the high court ruled that the appeals court had "loosely" interpreted a state law cited by Phoebe Putney to justify a merger that would give the consolidated health system control of about 85% of the market in the region. The high court reversed the appeals court ruling and sent the case back to federal district court.

Jay Levine, a specialist in healthcare antitrust issues with the Washington, DC office of Bradley Arant Boult Cummings LLP, says the high court's ruling clarifies a standard for state action immunity that could have broad implications for a broad array of industries beyond the healthcare sector.

Beyond that, however, Levine says the ruling won't apply for the majority of hospital mergers and acquisitions.

"The Supreme Court clarified that the 11th circuit interpretation of foreseeability was far too loose. In that respect it could have broader implications. But most transactions among hospitals today are not done pursuant to any hospital authority, are really just private transactions so state action really isn't applicable," Levine told HealthLeaders Media.

"For a normal private transaction between a hospital system, for example reducing the number of hospital from four to three, and not done pursuant to any state policy or not done under the auspices of a hospital authority or the like, this will not impact that whatsoever."

Levine says the ruling could prompt a reexamination of state policies that encourage integration through Accountable Care Organizations and other collaboratives encouraged by the Affordable Care Act.

"Then it could have an implication because if you are different practice groups or you are a (Physician Hospital Organization) and you want to do something because a state authorizes us to get together to create this sort of network, then if you are going to try to avoid antitrust scrutiny by pointing to that state mandate and saying there is a clear articulation of state policy to displace competition," Levine says.

"You are going to have to prove that your conduct was a foreseeable result of that state mandate and that now that foreseeability standard is not as loose."

Mark Pauly, a health economist at The Wharton School of the University of Pennsylvania, shares Levine's assessment about the impact of the high court ruling, and notes that only a small fraction of community hospitals are government owned.

"The proportion of community in hospitals in the United States that would have this kind of state protection is very small. It can't matter in most places," Pauly says. "The only statement that I thought was way out of line was the chairman of the FTC who said this decision is a big victory for consumers who want to see lower healthcare costs. Given that the community hospitals almost never have this arrangement with the state I don't see how it is a big victory for consumers."