February 19, 2013

Supreme Court Decides FTC v. Phoebe Putney Health System, Inc.

In 1941, Georgia enacted the Hospital Authorities Law, which authorized the state's counties and municipalities to create public entities called hospital authorities. This law conferred 27 enumerated powers on the hospital authorities, including the power "[t]o acquire by purchase, lease or otherwise and to operate projects," defined to include hospitals and other public health facilities. That same year, the City of Albany and Dougherty County in Georgia established the Hospital Authority of Albany-Dougherty County ("Authority"), which acquired Phoebe Putney Memorial Hospital ("Memorial"). 

In 2010, Memorial proposed buying the only other hospital in Dougherty County, called Palmyra, from its owner and operator, HCA, Inc., a national for-profit hospital network. Memorial and the Authority planned to have the Authority purchase Palmyra with funds controlled by Memorial and then lease Palmyra to a newly created Memorial subsidiary. The Federal Trade Commission (FTC) issued an administrative complaint alleging that the proposed purchase-and-lease transaction would create a virtual monopoly and substantially reduce competition in the market for acute-care hospital services. Subsequently, the FTC and the State of Georgia filed suit against the Authority, HCA, Palmyra, Memorial, and the newly created subsidiary.

The United States District Court for the Middle District of Georgia held that the respondents were immune from antitrust liability under the state-action doctrine, and the Eleventh Circuit affirmed. Specifically, the Court of Appeals reasoned that the Georgia legislature must have anticipated that the grant of power to hospital authorities to acquire and lease projects would produce anticompetitive effects, and thus was a "foreseeable result" of the legislation.

On appeal, the Supreme Court determined that the Eleventh Circuit interpreted the concept of "foreseeability" too loosely. The Court found that, given the fundamental national values of free enterprise and economic competition embodied in federal antitrust laws, state-action immunity is recognized only when "it is clear that the challenged anticompetitive conduct is undertaken pursuant to a regulatory scheme that ‘is the State's own.'" Sub-state governmental entities receive immunity from antitrust scrutiny only when they meet the two-part test outlined in California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980). Specifically, the challenged restraint must be clearly articulated and affirmatively expressed as state policy, and the policy must be actively supervised by the State. Id. Under the first prong of this test, the Court held that "clear articulation" requires that a State have affirmatively contemplated the displacement of competition so that the challenged anticompetitive effects can be attributed to the state itself. While this prong does not require explicit authorization of the specific anticompetitive effects for state-action immunity to apply, the displacement of competition must be the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature. Applying the test to Georgia's special-purpose public entities, the Court found that Georgia's law did not contemplate that the hospital authorities would displace competition by consolidating hospital ownership. While the Georgia law permitted the Authority to acquire hospitals, it did not "clearly articulate and affirmatively express a state policy empowering the Authority to make acquisitions of existing hospitals that will substantially lessen competition." Citing the amici brief filed by 20 states in support of the FTC's position, the Court reasoned that loose application of the clear-articulation test would "attach significant unintended consequences to local bodies, effectively requiring states to disclaim any intent to displace competition to avoid inadvertently authorizing anticompetitive conduct."

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