FTC to Appeal Phoebe / Palmyra Decision

The Federal Trade Commission will appeal a federal judge's ruling this week to deny a preliminary injunction against Phoebe Putney Health System Inc.'s proposed $195 million acquisition of rival HCA's Palmyra Park Hospital, in Albany, GA.

"There is abundant evidence – and the defendants do not dispute – that Phoebe Putney's acquisition of Palmyra, its only rival hospital in the Albany, Georgia area, will create a monopoly," FTC Bureau of Competition Director Richard Feinstein said in a media release. "This will result in dramatically higher healthcare costs for citizens of that community.  The deal was specifically structured to avoid antitrust enforcement.  We will immediately appeal the court's decision that the acquisition is immune from antitrust scrutiny."

U.S. District Judge W. Louis Sands on Monday ruled that the PPHS was immune from federal antitrust liability under the FTC Act and the Clayton Act.

PPHS issued a statement lauding the ruling: "In a well reasoned and well documented order, Federal Judge Louis Sands has affirmed our position. He has ruled that the FTC does not have jurisdiction in this case and that the Hospital Authority of Albany and Dougherty County is immune from federal anti-trust liability. His order dismisses the case and dissolves the temporary injunction that prevented us and HCA from moving forward with our consolidation plans."

The Georgia Attorney General's Office had joined the FTC in the complaint, but will not appeal Sands' ruling. "We respect the ruling of the district court, and do not intend to appeal," Attorney General Sam Olens said in a media release. "My office filed a joint complaint with the Federal Trade Commission after the FTC voted 5-0 to seek an injunction and provided my office with robust evidence that the merger will reduce competition and raise healthcare prices in Dougherty County. Through the district court litigation, we were able to highlight our concerns with the acquisition process."

In their complaint, the FTC and the Georgia AG allege that PPHS 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 wanted Sands to delay the acquisition until the conclusion of the FTC's administrative proceeding and any subsequent appeals.

Phoebe, the Authority, and HCA argued 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 alleged, the transaction was motivated and planned exclusively by Phoebe, acting in its own private interests.

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.

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 said.

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.

See Also:
FTC, GA Challenge 'Anticompetitive' Phoebe/Palmyra Acquisition