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Phoebe Putney's move to high court draws interest

By Joe Carlson
Posted: October 20, 2012 - 12:01 am ET

The Federal Trade Commission is trying to make it more difficult for public hospitals to buy up their competitors, and a wide range of state governments and other observers have taken a keen interest as the matter heads to the U.S. Supreme Court.

The justices are scheduled to hear oral arguments Nov. 26 in FTC v. Phoebe Putney Health System, a case that pits the federal government's desire for free-market competition versus local governments' power to meet public needs that are not satisfied through traditional market forces.

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In this case, the unmet need is healthcare for vulnerable populations—at least according to a reading of the facts contained in a friend-of-the-court brief field by Lee Memorial Health System in southwest Florida.

Lee Memorial, a public health system, won an appeals-court case in 1994 after the FTC challenged its ability to acquire a competitor in Lee County, Fla. Similarly, the FTC is now challenging the ability of a Georgia county hospital authority to acquire the sole competitor to the government's publicly owned hospital, Phoebe Putney Memorial Hospital.

“Public health systems ordinarily are directed to 'provide treatment without charge of those patients without the means to pay,' precisely because such patients are chronically underserved by private healthcare providers operating in the competitive marketplace,” Lee Memorial's brief in the Phoebe Putney case says, quoting Florida law.

A coalition of 20 state governments sees it differently. In a joint filing in Phoebe Putney, the states—led by Illinois—argue that the Supreme Court justices should overturn previous case law and precedents that make it too easy for political subdivisions of state governments such as hospital authorities to disregard pro-competition federal laws.

Although states have long enjoyed a power to create regulated monopolies that would be illegal among private companies, the FTC has argued that the Phoebe case shows the exact danger of such “state action” powers.

“The decision below strikingly illustrates the problem,” the states' brief says of a federal appeals court's decision in Phoebe. “The 11th Circuit immunized a hospital monopoly that will raise prices for patients and payers without any clear indication that Georgia legislators approved this conduct.”

Douglas Ross, a healthcare antitrust attorney with Davis Wright Tremaine in Seattle, said the Supreme Court could decide to expand public hospitals' ability to acquire their competitors without fear of challenges from the FTC if it ruled that state laws do not have to explicitly say that hospital authorities have monopoly-making power.

But he doesn't think that's likely to happen. Rather, he speculated that the justices may have been interested in the case because of the narrower set of allegations that the $198 million purchase of HCA's Palmyra Park Hospital by the public authority that owns Phoebe Putney was actually a deal negotiated between two private parties exploiting the “fig leaf” of the state action rules.

“What we could end up with is a narrow decision that has little consequence for hospitals,” Ross said. “There aren't hospitals out there trying to do the deal that Phoebe Putney did. At least not many.”

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