The U.S. Supreme Court has agreed to hear arguments on an antitrust challenge to a nationally watched hospital acquisition filed by the Federal Trade Commission against Phoebe Putney Health System in Albany, Ga.

Phoebe Putney last year acquired its rival hospital in town, 102-bed Palmyra Medical Center, in a $198 million deal that greatly consolidated the market for hospital services in southwest Georgia. Rather than contest the allegation of market power, Phoebe Putney attorneys have argued the deal was shielded from antitrust scrutiny by Supreme Court case law that gives state-run entities the power to take anti-competitive actions.

The 439-bed Phoebe Putney Memorial Hospital is owned by a public hospital district and run by an independent not-for-profit operating company, Phoebe Putney Health System. Attorneys for the hospital say that because it's owned by a political subdivision of the state, it has the power to take “state action” that is shielded from antitrust review.

The FTC has argued that the private not-for-profit health system has used its $1-a-year lease of the public hospital to inappropriately shield the transaction from antitrust regulation. FTC officials have said Phoebe Putney lacks the kind of unambiguous permission from state lawmakers that would be needed to consolidate an otherwise competitive market under the state action doctrine.

Ralph Rosenberg, chairman of the Albany-Dougherty County Hospital Authority, said a reporter's phone call about the Supreme Court's decision was the first he'd heard of it, but he didn't think the court's action would affect the ongoing efforts to integrate Phoebe Putney and Palmyra's operations.

“My only comment is, I'm disappointed of course. I thought it was a pretty cut-and-dried issue from the beginning,” Rosenberg said. “It has been through a District Court, which has affirmed the purchase. It has been through the circuit, which has affirmed the purchase. And now they have pushed it to the Supreme Court.”

FTC Chairman Jon Leibowitz said in an e-mailed statement that he was pleased that the Supreme Court had agreed to hear the case.

“This case is important to consumers, who benefit from a competitive healthcare marketplace,” Leibowitz said. “It also may provide crucial guidance on the boundaries of the state action doctrine.”

The Supreme Court announced Monday (PDF) that it would hear the case during its next term, which begins in October.