FTC, Phoebe Putney in settlement talks over disputed acquisition

The Federal Trade Commission and Phoebe Putney Health System are in settlement talks to resolve a bitterly disputed court battle over a $200 million hospital acquisition in southwest Georgia.

The FTC and Albany, Ga.-based Phoebe Putney have already been to the U.S. Supreme Court in their two-year battle over the question of whether Phoebe Putney, the market's dominant healthcare system, can buy its crosstown rival, Palmyra Medical Center, from HCA. The deal to buy the 102-bed hospital was completed in 2011. But Phoebe Putney was then prohibited from consolidating with Palmyra until the final outcome of antitrust litigation was determined.

More than 350 hospitals changed hands nationally in 2012, thanks to a host of economic pressures that make membership in a larger system more attractive. While some market forces favoring consolidation arise from the federal Patient Protection and Affordable Care Act, many predated the law. FTC officials have ramped up antitrust review of hospital deals and made clear that a mandate for reform does not supersede monopoly concerns.

In the Phoebe Putney case, the FTC argues (PDF) that the not-for-profit company that operates Phoebe Putney Health System tried to use a loophole in antitrust law called the state action doctrine to shield an anti-competitive deal from federal scrutiny. Phoebe disputed that characterization, but in February a unanimous U.S. Supreme Court ruled the hospital didn't have authority from the Legislature to claim a state action defense.

That sent the case back to lower courts for a new round of litigation in which the hospital couldn't use state action as a defense—creating an uphill challenge for the hospital, since court records show the entire transaction was premised on being able to use the loophole in federal antitrust law.

Settlement talks between the two sides got serious in June, court records show.

Last week attorneys for the FTC and Phoebe Putney filed for permission to delay litigation in the case until Aug. 22 while the two sides work toward “a reasonable possibility of settlement,” (PDF) court records show.

Meanwhile, the FTC is still awaiting word from a federal appellate court in its other major ongoing hospital-acquisition case: the acquisition of St. Luke's Hospital in Maumee, Ohio, by one of its chief competitors, ProMedica Health System in Toledo, Ohio.

The FTC ordered ProMedica to unwind the sale, which was closed for an undisclosed price in 2010. But ProMedica challenged the order in the 6th U.S. Circuit Court of Appeals. Lawyers for both sides argued their cases to the appellate court in Cincinnati in March, and a decision in the case could come any time.

In both the ProMedica and Phoebe Putney cases, the FTC argues that the expanded health systems would use their market clout to extract higher prices from payers, which research shows is what has often happened due to consolidation. The health system executives argue that efficiencies resulting from the acquisitions could keep prices more stable in the long run.

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