As promised, the Federal Trade Commission filed an appeal over a Georgia hospital merger in which it alleges that Phoebe Putney Health System agreed to pay a high purchase price to buy its sole rival and establish a monopoly, on the condition that the sale would be shielded from antitrust review by a legal loophole.
FTC continues fight against Palmyra deal
Defenders of the $195 million buyout of a 120-bed Palmyra Medical Center in Albany, Ga., say the transaction is immune from antitrust scrutiny because the legal purchaser would be the Hospital Authority of Albany-Dougherty County. The authority also owns 439-bed Phoebe Putney Memorial Hospital and leases it to the private Phoebe Putney Health System for $1 per year.
The FTC has attacked the legal structure of the deal, calling the public authority an “absentee landlord” and saying it had about as much control over the purchase as a notary public stamping the contracts would have.
However a judge in U.S. District Court in Albany last June disagreed, saying the sale was protected by the “state action” doctrine, which allows political subdivisions like the hospital authority to legally act in anti-competitive ways. On Wednesday, the FTC appealed that ruling to the 11th Circuit Court of Appeals in Atlanta.
In arguing their case, FTC attorneys took particular issue with the high purchase price for Palmyra that was negotiated exclusively between its owner, for-profit HCA, and lawyers for the not-for-profit Phoebe Putney Health System.
The government says HCA wanted an “aggressive” purchase price equal to at least twice the hospital's annual net revenue. Investment bankers balked at the deal, advising Phoebe Putney Health System officials the typical purchase price in such a deal would be about one-and-a-half times annual revenue, and that only one of 44 recent hospital purchases they examined had a higher ratio of revenue to cost.
“In the end, judging that the acquisition of a monopoly was worth it, (Phoebe Putney Health System's) board approved an aggressive formal offer to HCA,” the FTC lawyer wrote. “For its part, the authority neither sought a fairness opinion before acquiescing to the Palmyra purchase, nor undertook any inquiry into the unusually high purchase price.”
HCA also received a guarantee that if the sale fell through because of an FTC challenge, it would receive a $35 million break-up fee.
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