Supreme Court Unanimously Rules Unforeseeability Bars Immunity Defense For Allegedly Anticompetitive Hospital Merger

On February 19, 2013, the U.S. Supreme Court unanimously held that state-action immunity does not protect a state-created hospital authority from antitrust scrutiny over a proposed hospital merger where the anticompetitive effect of such merger was not a “foreseeable result” authorized by the state. FTC v. Phoebe Putney Health System, Inc., 568 U.S. ___ (2013). The proposed merger-to-monopoly between Phoebe Putney Health System, Inc. (“Phoebe Putney”) and Palmyra Park Hospital, Inc. (“Palmyra Park”) had been deemed protected by state-action immunity by both a district court and the U.S. Court of Appeals for the Eleventh Circuit. In overturning the lower courts, the Supreme Court considered whether the state law that created the hospital authority that owned Phoebe Putney “clearly articulate[d] and affirmatively express[ed] a state policy to permit acquisitions that substantially lessen competition.”

The Supreme Court decision clarifies and limits the foreseeability inquiry that has crept into state-action immunity analyses. Phoebe Putney is the first merger case to reach the Supreme Court since 1974, but the decision did not address substantive merger law matters. It was also the first hospital merger case that received any Supreme Court review; the Court's analysis would seem to signal that hospital markets are correctly receiving full antitrust scrutiny.

Background

Pursuant to a 1941 Georgia state law, political subdivisions in the state are permitted to provide health care services through municipal “hospital authorities.” Under the law, hospital authorities have the power “to acquire by purchase, lease, or otherwise and to operate projects.” Employing the state law, the City of Albany and Dougherty County established a hospital authority (“Authority”) that acquired Phoebe Putney Memorial Hospital (“Memorial”). In 1990, the Authority restructured its ownership of Memorial by forming a private nonprofit corporation, Phoebe Putney, which would lease Memorial from the Authority for $1 per year and would have exclusive power over the operation of the hospital.

In 2010, Phoebe Putney began merger discussions with Palmyra Park. Phoebe Putney and Palmyra Park own the only two hospitals in the Albany, Georgia area. Together, the two hospitals have 86 percent market share in the six counties surrounding Albany for the provision of acute-care hospital services provided to commercial health care plans. Following the negotiations with Palmyra Park...