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FTC battles state, backs off

Phoebe Putney allowed to keep Palmyra


By Gregg Blesch
Posted: August 24, 2013 - 12:01 am ET
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The Federal Trade Commission may have won a battle, but it lost the war over Phoebe Putney Health System's expansion in southwestern Georgia.

The outcome reflects the legal tangle sometimes faced by FTC antitrust enforcers as they struggle to convince state lawmakers of the unintended consequences of trying to tame hospital construction and duplicate services with certificate-of-need laws.

Earlier this year, the FTC convinced the U.S. Supreme Court it had the power to challenge Phoebe Putney's acquisition of its only significant competitor in a six-county region surrounding Albany. But the state's regime for regulating the healthcare business stymied the FTC's ambition to unwind the deal. A new owner, they conceded, would have to get a certificate of need—and state regulators would almost certainly deny one.

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In a surprise turnaround, the federal antitrust enforcers agreed last week to allow Phoebe Putney to keep Palmyra Medical Center, a 102-bed facility that the not-for-profit system bought for $195 million from HCA in 2011. In the wake of the purchase, the system had consolidated Palmyra and Phoebe Putney Memorial Hospital under a single hospital license, creating the need to get a new CON if the marriage was undone.

Before the retreat on Phoebe Putney, the FTC had collected an imposing string of wins blocking hospital deals over the past few years.

In Georgia, the commission settled for a consent order that at best will make competing with Phoebe Putney a bit easier. The system agreed to notify the FTC before acquiring facilities or physician practices in the next 10 years. The system also would be barred from challenging other organizations' CON applications, which can make it extremely expensive and time-consuming to enter a market or expand services in the state.

However, legal observers say those minor restrictions are unlikely to lead to new competition in the region. Douglas Ross, an antitrust lawyer with Davis Wright Tremaine, said Phoebe Putney has already established dominance in the market and it's unlikely that any new competitor would try to enter the area.

“What this does is show that a regulatory certificate-of-need regime is at odds with the competitive market that the antitrust laws are seeking to create,” Ross said.

Before Phoebe Putney and HCA struck their deal, they had battled in court over Palmyra's efforts to get a CON to add an obstetrics unit.

The FTC chose to focus on its narrow legal win. Deborah Feinstein, the director of the FTC's competition bureau, called the case a “tremendous victory” because of the favorable high court ruling rejected “state-action immunity,” which Phoebe Putney had argued should insulate the deal from federal antitrust laws. The only other hospital in the region is a 25-bed critical-access facility about 30 miles away.

The transaction was carried out through the Hospital Authority of Albany-Dougherty County, which operated Phoebe Putney until 1990 before creating a private not-for-profit company to run the facility (it leases the assets for $1 a year). The authority has no budget and no employees. The FTC described it as a “straw man” in the deal. In February, the Supreme Court ruled the hospital authority couldn't claim antitrust immunity as an agent of the state Legislature.

In the consent order, Phoebe Putney stipulates that the acquisition may “substantially” lessen competition. Yet it continues to maintain publicly that a bigger Phoebe Putney will be good for consumers.

Thomas Chambless, senior vice president and general counsel at Phoebe Putney, called the terms of the agreement an acceptable resolution that would allow the system to move forward with plans to add services at the north campus that had been stalled under a restraining order imposed after the Supreme Court ruling. “We'd just as soon not have anything as a restriction on our business plan within the free market economy that we have,” Chambless said.

The FTC and some legal observers maintain the state's CON law is protecting Phoebe Putney from the wilds of the free-market economy.

“Here is an astounding juxtaposition of CON regulation with antitrust law. You end up with a situation where you have one competitor instead of two, and it appears the market would have sustained two,” Ross said. “Is that a good policy result?”

The consent order is subject to public comment for 30 days before the commission makes it final.

Follow Gregg Blesch on Twitter: @MHgblesch


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