Tuesday, February 19, 2013

Supreme Court Limits “State Action” Antitrust Exemption in FTC v. Phoebe Putney, Reversing Decision that Limited FTC Authority to Challenge Hospital Merger


On February 19, 2013, the United States Supreme Court issued its decision in FTC v. Phoebe Putney Health System, a closely-watched antitrust case involving an FTC challenge to a Georgia hospital merger.  In a 9-0 opinion, authored by Justice Sonia Sotomayor, the Supreme Court held that the “State Action Doctrine” – which, in some circumstances, provides immunity from the federal antitrust laws for actions taken at the direction of the states - did not bar the FTC from challenging a decision by a Georgia Hospital Authority (a special-purpose public entity created by the Georgia legislature) to acquire a competing local hospital.  The ruling reverses an earlier decision by the 11th Circuit, which had held that the State Action Doctrine did immunize the transaction from FTC challenge.

In reaching its decision, the Supreme Court held that the Georgia Hospital Authorities Law, pursuant to which the Hospital Authority had been created, did not clearly reflect that the legislature intended to permit hospital authorities to acquire hospitals where such transactions would have anticompetitive effects.  Instead, while the statute clearly permitted hospital authorities to acquire hospitals, it was silent on the issue of whether such acquisitions were authorized where the effect of the transaction might be anticompetitive.  Consequently, the Hospital Authority’s purchase of a second hospital in the area (which the FTC contended would have anticompetitive effects), could not properly be said to have been taken pursuant to a “clearly articulated and affirmatively expressed” state policy to displace competition with regulation, a necessary precondition to finding “State Action” immunity from the federal antitrust laws.

Specifically, the Supreme Court concluded that the Georgia statute was best characterized as nothing more than a grant of “general corporate powers” to the hospital authority, which was insufficient to show a clear intention to permit the Hospital Authority to exercise its acquisition rights in an anticompetitive way.  Accordingly, noting that immunity from the antitrust laws is generally “disfavored,” the court held that an FTC challenge to the transaction was not barred by the State Action Doctrine.

Given the current wave of hospital consolidations, and the number of such hospitals that are owned by local hospital authorities, the decision is likely to have far reaching implications.  While almost all such transactions had previously been presumed to be outside the scope of federal antitrust review, the Phoebe Putney ruling now makes clear that immunity will only exist where the state statute that creates the hospital authority clearly reflects that the state intended to permit a hospital authority to exercise acquisition rights in a manner that may be anticompetitive.

A copy of the decision can be found at http://www.supremecourt.gov/opinions/12pdf/11-1160_1824.pdf