Legal battles spotlight hospital authorities’ role


In December, a former CEO of a South Georgia hospital system was convicted in a Medicaid fraud case of falsifying records, including fabricating minutes of a hospital authority meeting that had never happened.

Four months later, a second controversy over a hospital authority arose in South Georgia.

The Federal Trade Commission, challenging an Albany hospital on a proposed acquisition of a rival facility, 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, disputing the FTC allegations, have continued to maintain that the proposed deal is exempt from federal antitrust laws.

The two episodes, though somewhat different, both point to gray areas around Georgia hospital authorities, which are government entities created by cities or counties, or both, to build, equip and fund hospitals across the state.

“These cases in South Georgia raise questions about what role many hospital authorities play in day-to-day operations of a hospital,’’ says Holly Lang of the consumer advocacy group Georgia Watch. “A lot of hospital authorities are simply rubber-stamping and have no meaningful role.’’

The state has 85 hospital authorities, according to the Georgia Hospital Association. They can borrow money, using the credit of their hospital, county and city to get a better interest rate, says Brad Guest, an Atlanta-based health care consultant with BDC Advisors.

Hospital authorities, as government organizations, also can draw down extra federal health care funding from the federal government.

Fraud scheme in Archbold case

Several years ago, federal and state officials began examining whether hospital authorities and the hospitals they operated were really governmental or ‘’public’’ facilities, and thus able to draw extra Medicaid funds, according to the indictment of Ken Beverly.

Beverly was once the CEO of Archbold Medical Center, which owned Archbold Memorial Hospital.

The Beverly indictment said that for Archbold Memorial Hospital to be classified as a public hospital — and thus gain additional Medicaid dollars — it had to be under the operational control of the City of Thomasville Hospital Authority. Beverly was accused of breaking the law in an effort to create the illusion of such control.

Beverly was charged with conspiring with William Sellers — who was Archbold Medical Center’s chief financial officer at the time — to create fictitious documents showing the hospital authority had operational control of Archbold Hospital. The scheme netted the hospital an extra $9 million in government funding.

Beverly was later found guilty on six counts of falsifying records, obstruction of justice and making misleading statements. Sellers pleaded guilty to his part in the scheme and testified against Beverly.

Critics such as Lang say that while many Georgia authorities maintain supervisory oversight over hospital operations, others may be just minimally involved in hospital activities.

During the past 25 years, most hospital authorities in Georgia decided to restructure as the health care business climate intensified.  The authorities typically formed a nonprofit corporation and the leased the hospital to it for $1 a year. Fulton-DeKalb Hospital Authority did so recently, creating a nonprofit corporation to run Grady Memorial Hospital.

Restructurings were done partly to ‘’get out of the sunshine‘’ and undertake more financing and planning in private, says Craig Savage, a health care consultant based in Durham, N.C.

Another reason for restructuring was that original authority rules prohibited hospitals from opening health clinics in neighboring counties, says Temple Sellers, general counsel for the Georgia Hospital Association.

Phoebe Putney’s authority was one of those that made the change, in 1990.

FTC challenges Phoebe acquisition

In April, the Federal Trade Commission, joined by state Attorney General Sam Olens, alleged that Phoebe Putney Health System’s purchase of an Albany competitor hospital was anti-competitive and would raise health care costs in the area. The agency filed a complaint in U.S. District Court to halt the purchase.

The FTC also alleged that Phoebe structured the deal in a way that used the Hospital Authority of Albany-Dougherty County 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 a statement. “In fact, since at least 1990, the complaint states, 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 concluded that the “state action” doctrine — pertaining to antitrust immunity for government units such as the authority — cannot be used as a defense to Phoebe’s proposed acquisition of Palmyra.

Attorneys for the Albany-Dougherty County Hospital Authority are challenging the FTC action, asking for the case to be dismissed. They have filed papers in U.S. District Court saying authority members were apprised of a possible acquisition of Palmyra and gave tentative approval of the deal before it was struck. The authority later approved the transaction, says the legal brief from the Atlanta firm Bondurant, Mixson and Elmore.

The deal is exempt from antitrust action because it was done by a government entity, the hospital authority, says Frank Lowrey of the Bondurant firm. There is no ‘’active supervision’’ requirement in such state action cases, the attorneys say.

The lawyers’ motion adds: ‘’The Hospital Authority retains supervisory authority and control to ensure that Phoebe Hospital operates in fulfillment with the authority’s statutory mission.’’

Jackie Ryan, a spokeswoman for Phoebe Putney Health System, said Thursday that the acquisition ‘’is between a willing seller and a willing buyer.’’

“It’s a matter beyond the FTC’s purview,’’ Ryan said, adding, “The hospital authority carries out its duties exactly as it’s supposed to,’’ meeting the conditions of the lease under the restructuring.

A hearing on the FTC case is expected this month.