Hospital Acquisition Takes Big Hit: Supreme Court Unanimously Favors Federal Trade Commission

On February 19, 2013, the United States Supreme Court ruled unanimously in favor of the Federal Trade Commission (FTC) holding that the state-action immunity doctrine does not protect a state-created hospital authority from antitrust scrutiny. The case, Federal Trade Commission v. Phoebe Putney Health System, Inc., involved the acquisition by Phoebe Putney Health System (PPHS), a nonprofit corporation formed under Georgia’s hospital authorities law, of another hospital in the same county.

In 2011, the FTC challenged the acquisition in federal court by requesting a preliminary injunction. The FTC alleged the acquisition would result in a virtual monopoly and reduce competition. The federal District Court and the U.S. Court of Appeals for the Eleventh Circuit rejected the FTC’s request. The Court of Appeals held the hospital authority, as a local government entity established in accordance with Georgia law, was immune from the FTC’s enforcement of antitrust laws.

The Supreme Court unanimously disagreed. The Supreme Court held Georgia state law does not expressly permit hospital authorities to make acquisitions that substantially lessen competition. The Supreme Court’s decision is important for several reasons:

• It reaffirmed the Supreme Court’s previous guidance that state-action immunity is disfavored in light of the “essential national policies” underlying the federal antitrust laws;
• It likely will encourage the FTC and private plaintiffs to continue to challenge assertions of antitrust immunity;
• It will likely reduce the ability of state municipalities, cities, and counties to protect hospital and health system mergers approved by such government entities from antitrust scrutiny; and
• It may have implications for Accountable Care Organizations.

Hospital authorities and similar entities and private parties pursuing transactions with entities owned by a state political subdivision should carefully analyze the law before engaging in conduct that may raise antitrust concerns.