Phoebe, FTC reach deal to end legal fight

Phoebe Putney Health System and its local hospital authority have agreed to settle Federal Trade Commission charges that the acquisition of a rival hospital harmed competition in six South Georgia counties.

The agreement, announced Thursday, does not include Phoebe Putney divesting itself of the former Palmyra Medical Center, because that would trigger a state regulatory review under the certificate of need (CON) system, the federal agency said in a statement.

The deal essentially ends the FTC’s two-year battle against the merger of Albany’s only two hospitals, which the agency charged was anti-competitive.

“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,” Deborah Feinstein, director of the FTC’s Bureau of Competition, said in a statement.

“Regrettably, that legal victory will not undo the acquisition’s clear harm to competition. Because divestiture is unavailable in light of Georgia’s strict certificate of need legislation, this proposed order is the most effective and efficient resolution that can be achieved at this time.”

The FTC was referring to a big victory it won in the U.S. Supreme Court in February. The justices unanimously set aside two lower court rulings that had upheld the merger. The high court allowed the FTC’s challenge to the deal to continue, meaning the long legal battle could stretch on for years more if no settlement was reached.

A health care antitrust attorney, after reviewing the settlement, told Georgia Health News that the agreement favored Phoebe Putney.

“I would think that for an entity to have lost a significant case before the Supreme Court, and they can now operate as business as usual, Phoebe is clearly the winner,’’ said Marc Peterzell of Arnall Golden Gregory in Atlanta. “They are right where they wanted to be.”

Phoebe noted in its own statement Thursday that under the settlement it would continue to operate the former Palmyra hospital, now known as Phoebe North.

The FTC statement said that “unfortunately, Albany is deemed ‘over-bedded’ by Georgia’s strict need assessment criteria making it unlikely that any possible divestiture buyer could obtain the necessary CON approval to operate an independent hospital.”

Peterzell of Arnall Golden Gregory added of the agreement, “It is somewhat ironic that the Georgia CON statute — designed to prevent overbuilding of hospitals and other health care facilities while preserving a competitive health care market– now stands as a barrier to allowing the FTC to re-create a competitive health care market in Albany. ”

As part of the settlement, Phoebe Putney and the hospital authority that officially made the purchase of Palmyra from HCA agreed that for the next 10 years they will not acquire, without prior notification to the FTC, a hospital, an inpatient or outpatient facility or a physician group of five or more doctors within a six-county region (Dougherty, Terrell, Lee, Worth, Baker and Mitchell counties).

The hospital authority and Phoebe will also be barred for five years from opposing a certificate of need application for any additional general hospital in the six-county area. CON laws can act as a barrier to the entry of a new facility, FTC said.

The order notes that the hospital authority and Phoebe Putney stipulated that the effect of the consummated transaction may be substantially to lessen competition within the relevant service and geographic markets alleged in the FTC complaint. But Phoebe officials said the FTC made no findings that Phoebe Putney or the hospital authority violated antitrust laws. And Phoebe says it reserves the right under the agreement to challenge related anti-competitive allegations in other proceedings.

The settlement is expected to become final in about 30 days, Phoebe officials said.

“We are pleased with today’s news and look forward to a new, exciting era for our hospital, staff, and the patients we’re proud to serve,” Joel Wernick, president and CEO of Phoebe Putney Health System, said in a statement. “We will soon be able to put this proceeding behind us and move forward with our plans to deliver world-class medical care for women and children, to provide new and expanded in-patient rehabilitation services, and to increase Phoebe’s ability to handle critically injured and ill patients who need intensive care.’’

The long legal battle over the merger was closely tracked by industry officials.

A temporary restraining order and preliminary injunction stopped the integration of Phoebe Putney’s operations with those of Palmyra.

The FTC argued from the start that allowing Phoebe to operate the only two hospitals in Albany was anti-competitive. Phoebe officials contended that the sale, completed in 2011, did not lead to any price increases, and they argued that FTC opposition was slowing down their plans to develop a women’s and children’s center.

Phoebe Putney’s legal team rattled the industry statewide recently by sending subpoenas to all non-specialty hospitals in Georgia, seeking financial and other information as it pursued its fight with the FTC.

The subpoenas sparked fears that complying with the request would be a financial burden on some hospitals. Facing protests from the Georgia Hospital Association, the Phoebe legal team subsequently pared back the document load for hospitals.