The agency reached a deal with Phoebe Putney and the Hospital Authority of Albany-Dougherty County that requires them to notify the FTC in advance of virtually all future acquisitions for 10 years and bars them from trying to prevent a new hospital from getting state approval to operate in the region.
But the antitrust watchdog said it was forced to forego its preferred remedy of ordering Phoebe Putney to divest Palmyra Park Hospital Inc. because Georgia's certificate of need laws would make it unlikely that any buyer for Palmyra would be able to get approval to operate in the area.
Deborah Feinstein, the director of the Bureau of Competition, said Thursday that the order was the "most effective and efficient resolution" that the agency could get under the circumstances.
"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," Feinstein said. "Regrettably, that legal victory will not undo the acquisition’s clear harm to competition."
The FTC has been fighting the deal, which it has described as a merger to monopoly, for years. Though the Eleventh Circuit agreed that the merger would likely thwart competition in the rural region of southwest Georgia, it ruled that the deal was shielded from antitrust scrutiny under the state action doctrine because the hospital authority ultimately carried out the acquisition using powers it was granted by state law.
Under the state action doctrine, states and state entities are generally exempt from federal antitrust enforcement as long as they are acting under a clearly articulated policy to replace competition with regulation.
But the Supreme Court unanimously ruled in February there was no evidence that the state had contemplated that the 1941 hospital authority system would displace competition. As a result, the justices said the transaction didn't qualify for antitrust immunity.
Though the agency quickly renewed its efforts to fight the deal, the two hospitals had already merged after the Eleventh Circuit refused to continue to block the transaction in late 2011.
While the FTC has been willing to fight to unwind consummated mergers in the past, the agency decided not to do so in this case because of Georgia's certificate of need law, which sets out a formula for how many beds a given region needs based on its population.
Phoebe Putney and Palmyra were both built before Georgia passed its certificate of need law in 1976, and as a result they were both grandfathered in and never had to pass through separate reviews, according to the FTC. But under the law, the region where the hospitals operate is considered "over-bedded," meaning that it would be unlikely that the Georgia authorities and courts would sign off on a certificate of need for a separate hospital in the region.
The FTC also opted to forego a price cap or other similar behavioral remedies, saying that those kinds of fixes generally failed to re-establish the level of competition that existed before the merger.
Instead, the proposed consent agreement requires Phoebe Putney to alert the FTC to any future acquisitions of hospitals as well as other healthcare providers, including outpatient facilities or doctor practice groups in the region. The hospital likewise will be barred from opposing anyone who applies for a certificate of need to run a general acute-care hospital in the area.
"The circumstances in this matter are highly unusual and the commission’s discontinuation of litigation and settlement of this case on the proposed terms are acceptable to the commission only under the unique circumstances presented here," the FTC said in its analysis of the proposal.
The settlement also requires Phoebe Putney and the hospital authority to stipulate that the merger's effect "may be substantially to lessen competition" in the region. The agency has typically not required that kind of stipulation in past merger settlements, though the commission said in 2012 that it would consider adjusting its policy on allowing companies to deny any wrongdoing in consent agreements after former Commissioner J. Thomas Rosch publicly criticized the practice.
Phoebe Putney attorney Lee K. Van Voorhis of Baker & McKenzie LLP said the hospital had no disagreement with the FTC's assessment of the situation involving the certificate of need law.
"The hospital authority and Phoebe Putney are very pleased to put this behind them and to get on with the business of providing world class health care to the people of southwest Georgia," Van Voorhis said. "All settlements have pros and cons of course, but primarily they're happy they can get on with the business of healthcare."
Phoebe Putney is represented in the FTC proceedings by Lee K. Van Voorhis, Katherine I. Funk, Brian F. Burke, Jennifer A. Semko, Teisha C. Johnson, John J. Fedele, Brian Rafkin and Jeremy W. Cline of Baker & McKenzie LLP.
Palmyra Park is represented by Jennifer Rie and Jayma M. Meyer of Simpson Thacher & Bartlett LLP.
The Hospital Authority of Albany-Dougherty County, another co-defendant in the administrative case, is represented by Emmet J. Bondurant, Frank M. Lowrey, Ronan P. Doherty and Michael A. Caplan of Bondurant Mixson & Elmore LLP.
The administrative case is In the Matter of Phoebe Putney Health System, Inc. et al., docket No. 9348, in the Federal Trade Commission.
--Editing by Chris Yates.
