It’s official: Phoebe settlement is off

The Federal Trade Commission announced Friday that it has rejected a proposed settlement agreement with Phoebe Putney Health System over the latter’s 2011 merger with a rival Albany hospital.

The FTC and Phoebe tentatively reached the agreement last year, appearing to put an end to what was already a long-running, complicated legal dispute. But the federal agency has been signaling for months that it might not take the deal after all.

Phoebe Putney Memorial Hospital
Phoebe Putney Memorial Hospital

The agency’s decision to reject the settlement revives the high-profile regulatory fight between Phoebe Putney and the FTC. The matter will now return to an administrative court, where a hearing is expected over the feds’ antitrust allegations against Phoebe.

The federal agency has contended for three years that Phoebe’s acquisition of Palmyra Medical Center violated antitrust laws, reducing competition and potentially raising prices for consumers.

“We’ve argued all along that this merger would create a monopoly in Albany that would harm consumers and employers in the region,” Deborah Feinstein, director of the FTC’s Bureau of Competition, said in a statement Friday. “Meaningful structural relief is needed to restore competition to this marketplace.”

Phoebe Putney officials called the FTC’s rejection of the deal disappointing.

Phoebe’s general counsel, Thomas S. Chambless, said in a statement, “It is disheartening to see the FTC throw this back into administrative litigation, because it is difficult to watch our federal government take actions that flaunt the overall needs of health care in our region, using our tax dollars to require us to use scarce and diminishing health care resources to fight them.”

The FTC, in its comments Friday, cited its effort earlier this year to seek a state agency ruling on whether a potential divestiture of the former Palmyra would require regulatory approval by Georgia.

The federal agency, when it sought the state ruling, noted that North Albany Medical Center, a newly formed entity, had expressed an interest in acquiring the former Palmyra and operating it as a competitor of Phoebe’s.

The Georgia Department of Community Health, in response to the FTC inquiry, said in June that a CON review would not be necessary if a divestiture of the former Palmyra was ordered. Phoebe Putney has appealed that ruling. It noted Friday that hearings on the CON matter are scheduled for next week, and for Sept. 24, in Atlanta.

The belief that a certificate of need (CON) review was required, the FTC said, was an obstacle that helped drive the agency to reach the tentative settlement last year with Phoebe Putney. The settlement deal would have allowed Phoebe to keep control of the former Palmyra, now called Phoebe North.

The long-running antitrust battle involved several court decisions, including one by the U.S. Supreme Court. But none of them resolved the case.

Because Phoebe Putney is owned by the Hospital Authority of Albany-Dougherty County, these two organizations initially argued that the transaction was exempt from federal antitrust scrutiny under the so-called “state action” doctrine. The Eleventh Circuit Court of Appeals ruled in favor of Phoebe on the issue. But that court’s ruling — which could have killed the FTC’s challenge — was unanimously reversed in February 2013 by the U.S. Supreme Court.

Marc Peterzell, an attorney with Arnall Golden Gregory who focuses on health care antitrust issues, said Friday that the unanimous Supreme Court ruling likely “emboldened this division of the FTC to take this sort of action.”

He added that the FTC decision to move forward against Phoebe may make hospitals review more closely the antitrust implications of their consolidation agreements with other hospitals.

Outside the legal arena, Phoebe Putney also made national news in the past year regarding the health insurance exchange.

The Washington Post reported that Southwest Georgia, where Albany is the major city, had the second-highest prices nationally in the insurance marketplace created by the Affordable Care Act, trailing only ski resort areas in Colorado.