Settlement ends long fight over Phoebe merger

The Federal Trade Commission and a South Georgia health system have reached a settlement in a four-year hospital antitrust case that drew national attention and was the subject of a U.S. Supreme Court ruling.


Under the agreement, Phoebe Putney Health System will not have to jettison the former Palmyra Medical Center, which it acquired in 2011 for $195 million. Palmyra was Phoebe’s sole hospital competitor in the Albany market. It now operates as Phoebe North.

The agreement is similar to one that the two sides reached in 2013. The FTC backed away from that deal last year, but this one is final.

The federal agency has contended throughout the legal tangle that Phoebe’s acquisition of Palmyra violated antitrust laws, reducing competition and potentially raising prices for consumers in southwest Georgia.

But FTC officials, in a statement Tuesday, cited restrictions under Georgia’s certificate-of-need (CON) laws as the reason they’re giving up their effort to force a divestiture of Palmyra. CON laws in Georgia regulate the construction and expansion of health care facilities.
“While we continue to have reason to believe that Phoebe Putney’s acquisition of Palmyra violated Section 7 of the Clayton Act and Section 5 of the FTC Act, any relief attempting to restore the competition lost as a result of the merger is precluded by Georgia’s strict CON requirements,”  the FTC said.

The consent agreement:

** requires Phoebe Putney and its local hospital authority to give the FTC prior notice before acquiring any  part of a hospital or a controlling interest in other health care
providers in the Albany area for the next 10 years.

** prohibits the hospital authority  and Phoebe Putney from opposing a certificate-of-need application for a  general acute-care hospital in the Albany area for up to five years.

**  contains a stipulation that  the effect of the Palmyra transaction may be substantially to lessen competition within the relevant service and geographic markets.

Phoebe Putney Memorial Hospital

The commission vote to make the consent order final was 3-0, with two commissioners not participating.

Last year, the FTC had second thoughts about the 2013 settlement agreement and asked for a state agency ruling on the CON question. Specifically, the FTC asked whether a potential divestiture of the former Palmyra would require regulatory approval by Georgia.

The federal agency noted to state officials 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 last June that a CON review would not be necessary if a divestiture of the former Palmyra was ordered.

But Phoebe Putney appealed that ruling, and an administrative hearing officer reversed the finding, saying the state laws would indeed apply in the event of a divestiture.

An attorney for the North Albany group declined comment Wednesday on the settlement.

A back-and-forth legal fight

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, those 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 sided with Phoebe on the state action issue. That ruling, if upheld, would have killed the FTC’s challenge.

But in February 2013, the nation’s highest court unanimously threw out the Eleventh Circuit ruling and ensured that the case could continue. And it did continue — for more than two years.

The commission has had success in challenging some hospital mergers and acquisitions in recent cases.

Leemore S. Dafny, a professor and health economist at Northwestern University who used to work at the commission, told the New York Times last year, “The Affordable Care Act has unleashed a merger frenzy.” Dafny said she saw antitrust enforcement as a powerful tool to slow “the march toward conglomeration.”

FTC Bureau of Competition Director Deborah Feinstein said last year that “by preventing anti-competitive mergers, as well as alliances and conduct that thwart competition, antitrust enforcement saves money that consumers, employers and governments would otherwise spend on health care.”

Outside the legal arena, Phoebe Putney made national news during the first year of the health insurance exchanges.

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.

Joel Wernick, CEO of Phoebe Putney, said in a statement Wednesday that the federal action had essentially blocked changes at Phoebe North, the former Palmyra.

“We have a team already at work evaluating what works best on which campus,’’ Wernick said. “The reality of a state where Medicaid has not expanded forces us to assure we extract maximum value from both campuses. All decisions will focus on what is in the best interest of our patient’s care and what brings the greatest value to our consumers.”