FTC deal lets Phoebe Putney keep Palmyra

The Federal Trade Commission will allow Phoebe Putney Health System in Georgia to keep the hospital it acquired in 2011 in a deal the government fought all the way to the U.S. Supreme Court and won.

A proposed consent order reached with the not-for-profit system bars Phoebe Putney from challenging certificate-of-need applications filed by would-be competitors and requires Phoebe Putney to notify the FTC before acquiring facilities or physician practices for the next 10 years.

The FTC will not, however, compel the system to divest the hospital because Georgia officials have issued a single license for the combined hospitals and the state's strict CON law effectively precludes the FTC from resurrecting Palmyra Medical Center (now called Phoebe North Campus) as a competing hospital.

Deborah Feinstein, the director of the FTC's competition bureau, called the case a “tremendous victory” because of the favorable ruling from the high court on the matter of “state-action immunity,” which Phoebe Putney argued should insulate the deal from federal antitrust laws, even though the acquisition delivered a monopoly in general acute care in a six-county area. The only other hospital in the regional is a 25-bed critical-access facility about 30 miles away.

Phoebe Putney paid $200 million to buy Palmyra from HCA. The legal transaction was carried out through the Hospital Authority of Albany-Dougherty County, which also holds the title to Phoebe Putney. In February, the Supreme Court ruled that 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.

Thomas Chambless, senior vice president and general counsel at Phoebe Putney, said the terms of the agreement were an acceptable resolution and would allow the system to move forward with plans to add services in the under-utilized north campus that 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.

But the FTC and some observers view the state's CON law as protecting Phoebe Putney from the wilds of the free-market economy.

In an analysis explaining the agreement, the FTC notes that ordering Phoebe Putney to sell the hospital would trigger a requirement for the new owner to get a CON and would be extremely unlikely to get one. CON applicants in Georgia have to show that their business won't harm the market share or payer mix or market share, according to the FTC.

Douglas Ross, an antitrust lawyer with Davis Wright Tremaine, said the restrictions the FTC's order impose on Phoebe Putney are minor because the system already established dominance in the market and it's unlikely that any new competitor would try to get traction in the area.

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

Even if the outcome is a limited victory for the government, it adds to a string of wins in hospital cases. In June, Capella Healthcare abandoned a deal in Arkansas rather than fend off an imminent FTC challenge. One widely watched case, involving Toledo, Ohio-based ProMedica, awaits a ruling by the 6th U.S. Court of Appeals.

Follow Gregg Blesch on Twitter: @MHgblesch