Phoebe Putney, Hospital Authority Settle FTC Charges

Owing to a conflict with Georgia's stringent Certificate of Need laws, the FTC will grudgingly drop its attempts to nullify Phoebe Putney's 2011 acquisition of rival Palmyra Park Hospital from HCA for $195 million.

A two-year antitrust investigation launched by the Federal Trade Commission against Georgia's Phoebe Putney Health System and the Hospital Authority of Albany-Dougherty County has ended with a settlement that has both sides claiming victory.

Owing to a conflict with Georgia's stringent Certificate of Need laws, the FTC will grudgingly drop its attempts to nullify Phoebe Putney's 2011 acquisition of rival Palmyra Park Hospital from HCA for $195 million. Phoebe Putney will keep the hospital, now called Phoebe North Campus, but the health system and the Authority may not for the next five years contest potential competitors providing additional acute care services in the six-county area around Albany, GA.

Phoebe Putney and the Authority said the settlement allows them to object to CON applications for other projects, but they have agreed to tell the FTC when they do. The hospital will provide the FTC with annual compliance reports for the provisions for 10 years. The two sides expect to finalize the consent agreement within 30 days.

The FTC had sought to have the acquisition voided and another buyer found for Palmyra, but learned that doing so would prompt a Certificate of Need review from the state of Georgia. "Unfortunately, Albany is deemed ‘over-bedded' by Georgia's strict need assessment criteria making it unlikely that any possible divestiture buyer could obtain the necessary CON approval to operate an independent hospital," the FTC said in a media release.

Phoebe Putney said the consent agreement will stipulate that the FTC made no findings that the hospital or the Authority violated antitrust laws. "Instead, solely to achieve a compromise with the FTC, and for purposes of these proceedings only, Phoebe Putney and the Hospital Authority have stipulated that the acquisition of Palmyra might substantially lessen competition within the service and geographic markets alleged by the FTC," the hospital said in a media release. "The settlement expressly reserves the rights of Phoebe and the Authority to contest that allegation in any other proceeding"

Joel Wernick, president/CEO of Phoebe Putney, said a settlement after more than two years of legal wrangling allows the health system to "put this proceeding behind us…"

"Today's settlement means Phoebe Putney will be able to use the Phoebe north campus as planned, to meet current capacity needs and to expand its tradition of high quality healthcare for our entire community," Wernick said in prepared remarks. "The citizens of Southwest Georgia are well served by this compromise solution [which] we believe to be in the best interests of all parties. It will also allow us to continue moving forward at a time of great change in our country's health delivery system"

In a case that prompted a ruling in February from the U.S. Supreme Court, the FTC alleged in its antitrust complaint that Phoebe Putney constructed an elaborate scheme that used the Authority 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"

Phoebe Putney and the Authority countered that they were immune from federal antitrust liability under the "state action" doctrine—which provides an exception for anticompetitive conduct if it is an act of government.

A federal district court and an appeals court sided with Phoebe Putney and the Authority. In February, however, those rulings were tossed out by the U.S. Supreme Court, which 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.

FTC officials said they were disappointed that they could not stop the Palmyra acquisition despite the favorable ruling from the high court, but they took solace in knowing that their complaint had established a more stringent legal precedent for state action exemptions.

"The FTC's efforts in this case produced a tremendous victory for consumers when the Supreme Court unanimously reined in overbroad application of state action immunity and allowed federal antitrust review of this merger," Deborah Feinstein, director of the FTC's Bureau of Competition, said in prepared remarks. 

"Regrettably, that legal victory will not undo the acquisition's clear harm to competition. Because divestiture is unavailable in light of Georgia's strict certificate of need legislation, this proposed order is the most effective and efficient resolution that can be achieved at this time"