FTC lawyer: Phoebe case good for future action

Phoebe Putney Memorial Hospital
Phoebe Putney Memorial Hospital

A Federal Trade Commission attorney says that while the agency’s recent settlement with Phoebe Putney was “less than satisfactory,’’ the agency can use the case as “Exhibit A’’ as it seeks to block anti-competitive hospital mergers in the future.

The terms of the settlement caught some observers by surprise, because earlier this year the U.S. Supreme Court had given the FTC a victory by keeping its challenge alive.

But Maggie DiMoscato, the lead FTC attorney in the case, told Georgia Health News in an interview last week that the settlement was the best the agency could achieve under the current Georgia certificate-of-need laws.

A critical moment in the case, she said, came in 2011, when a district court judge declined to grant the agency’s request for an injunction to block the purchase of Phoebe Putney Memorial Hospital’s only hospital competitor in Albany.

Later that year, the 11th U.S. Circuit Court of Appeals ruled in favor of Phoebe Putney, saying state action immunity prevented federal antitrust review of the acquisition. After that ruling, the acquisition was completed and the hospitals combined their assets, making a divestiture of the former Palmyra Medical Center virtually impossible under state regulatory laws.

But henceforth, DiMoscato said, the FTC can seek similar injunctions by holding up the Phoebe case “as Exhibit A’’ in showing the potential harm of combining hospital assets when a merger is completed.

Last month, Phoebe Putney Health System and the Hospital Authority of Albany-Dougherty County agreed to settle FTC charges that the Palmyra acquisition harmed competition in six South Georgia counties.

“My clients are happy to put this proceeding behind them and get on with the business of providing health care to the citizens of Southwest Georgia,’’ Lee Van Voorhis of Washington, D.C., law firm Baker & McKenzie, who represented Phoebe Putney in the case, told GHN on Friday.

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

“If we had obtained a preliminary injunction, Phoebe would never have had the opportunity to close the transaction – it would have been blocked from doing so pending the administrative merits trial,’’ DiMoscato told GHN. “Both hospitals would have been separate, and ultimately if the administrative law judge found that the proposed transaction violated the antitrust laws, the parties would have been precluded from consummating the transaction.’’

Even though the U.S. Supreme Court ruled in favor of the FTC in February, allowing federal antitrust review of the merger, the state’s certificate-of-need (CON) laws bar the divestiture of  Palmyra, DiMoscato said.

The Albany area is considered “overbedded’’ under CON laws, so if the hospitals had been separated again, no one would have been able to get approval to buy the former Palmyra, she said.

Both hospitals were grandfathered in before the state adopted its CON laws in the mid-1970s, she added.

DiMoscato said certificate-of-need laws can harm health care competition.

“CON laws generally impede the efficient performance of health care markets,’’ she said. “They create barriers to entry and expansion.’’

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 around Albany (Dougherty, Terrell, Lee, Worth, Baker and Mitchell counties).

DiMoscato said that means the FTC could ask for information about a proposed transaction and then could review the terms.

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.

The order noted that the hospital authority and Phoebe Putney stipulated that the effect of the consummated transaction might be substantially to lessen competition within the relevant service and geographic markets alleged in the FTC complaint.

But Phoebe officials pointed out that the FTC made no official findings that Phoebe Putney or the hospital authority violated antitrust laws. And Phoebe said it reserved the right under the agreement to challenge related anti-competitive allegations in other proceedings.

The settlement has prompted much analysis in Georgia and beyond by health care experts.

“I think the FTC should be pleased with the case results for their future enforcement actions,’’ said Marc Peterzell, a health care antitrust attorney with Arnall Golden Gregory in Atlanta.

Peterzell added that unless the Georgia General Assembly changes the hospital authorities law so that their hospitals would be eligible for government immunity from antitrust violations, “such (FTC) enforcement actions are much more likely to be successful.”