Appeals court blocks Albany hospital deal

Print Friendly and PDF By: Andy Miller Published: Jul 6, 2011

The 11th U.S. Circuit Court of Appeals granted a Federal Trade Commission request Wednesday for an emergency injunction to halt the sale of an Albany hospital.

The action by the appeals court in Atlanta follows a federal judge’s ruling last month that rejected an earlier FTC bid for an injunction to block the acquisition of Palmyra Medical Center.

The Albany Herald reported Wednesday that Phoebe Putney Health System was looking at finalizing the Palmyra transaction quickly, perhaps as early as this week.

But the decision by the appeals court, in calling for briefs from both sides, promises to keep the deal up in the air for at least some time.

Phoebe Putney issued a statement Wednesday about the injunction, saying that ”while we were prepared to sign all necessary documents for the purchase by tomorrow, we are not surprised by the 11th Circuit action at this time. We are, however, pleased that the 11th Circuit has also agreed to expedite the appeal process.”

Court documents filed in opposition to the emergency injunction request said HCA, Palmyra’s owner, had already been harmed by delays to the acquisition, the Herald reported. The documents stated that since the sale was announced last year, Palmyra employees have left the facility at a high rate.

FTC lawyers, though, called HCA’s claims of harm “specious,” saying the company not only knew the legal hurdles, but built in a way to profit from the deal through the implementation of a $35 million “breakup” fee if the acquisition was not consummated, the Herald said. Here’s the Albany Herald article on the injunction.

In April, the FTC and Georgia Attorney General Sam Olens had alleged that Phoebe Putney’s purchase of an Albany competitor hospital was anti-competitive and would raise health costs.

The federal agency also alleged that the local hospital authority was being used to shield the proposed transaction from antitrust scrutiny. Attorneys for the Albany-Dougherty County Hospital Authority, however, maintained that the proposed $195 million deal was exempt from federal antitrust laws.

U.S. District Court Judge Louis Sands, in late June, ruled that the hospital authority is immune from FTC attempts to block its acquisition of Palmyra.

In his 40-page order, Sands wrote, ”So long as the Authority determines that the proposed transaction will continually fulfill the Authority’s mission to promote public health needs of the community and allow it to retain public control of Palmyra as is contemplated by the Hospital Authorities Law — which it has done here . . . — the Authority may collaborate with private parties such as Phoebe Putney to execute the proposed transaction, without being subject to antitrust liability.”

Phoebe Putney praised the Sands ruling, noting that the judge found “the FTC does not have jurisdiction in this case and that the Hospital Authority of Albany and Dougherty County is immune from federal antitrust liability.’’

After Sands’ ruling, the FTC reiterated its position that “the deal was specifically structured to avoid antitrust enforcement.’’

The FTC alleged that Phoebe structured the deal in a way that used the hospital authority as a “strawman’’ in an effort to shield the acquisition from antitrust scrutiny under the “state action” doctrine.

“The authority engaged in no independent analysis of the proposed acquisition, committed $195 million to the purchase of Palmyra without considering the adverse effects the deal would have on health care prices in the area, and played no supervisory role in connection with the transaction,’’ the FTC said in an April statement. “In fact, since at least 1990 … the authority has not actively supervised Phoebe in any way, and has made no effort to review any of the hospital’s recent price increases.’’

The FTC complaint contended that the “state action” doctrine — pertaining to antitrust immunity for government units such as the authority — could not be used as a defense of Phoebe’s proposed acquisition of Palmyra.

But Sands in his ruling wrote: “Contrary to Plaintiffs’ claims, . . . whether the Authority authorized the purchase of Palmyra without considering, among other factors, the anticompetitive adverse effect of the acquisition on health care in the community and alternatives to leasing Palmyra to Phoebe Putney [is] irrelevant.”

The authority ”has created the machinery for structuring and executing the transaction, although Phoebe Putney negotiated, promoted, and lobbied for the transaction,” Sands wrote.

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