FTC Changes Stance on Proposed Settlement After Public Comments

On September 5, 2014, the Federal Trade Commission (“FTC”) announced that it is retracting the proposed settlement agreement with Phoebe Putney Health System, Inc (“Phoebe”), for the extended antitrust litigation regarding its acquisition of its rival Palmyra Park Hospital (“Palmyra”) in Albany, Georgia.

The FTC decided to retract its initial proposed settlement, which included no structural remedies, after its public comment period revealed that Georgia’s Certificate of Need (“CON”) laws do not preclude the FTC from seeking meaningful structural relief.

The FTC’s complaint in 2011 alleged that the merger between Phoebe and Palmyra Park would significantly reduce competition of acute-care hospital services sold to commercial health plans in the six-county area surrounding Albany, Georgia, resulting in higher prices and lower quality of service for patients and their employers. The combined hospitals controlled an 85 percent market share.

However, the FTC’s initial complaint was rejected by Judge W. Louis Sands of the U.S. District Court in June 2011, and in his decision to uphold the defendant’s motion to dismiss held that the state action doctrine immunized the transaction from federal antitrust scrutiny. The FTC then appealed to the U.S. Court of Appeals for the Eleventh Circuit, which affirmed the decision by the district court, even though it noted that “the joint operation of Phoebe and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly” in the Albany, Georgia market.

The FTC then filed a petition for certiorari, which the U.S. Supreme Court granted on June 25, 2012. In February 2013, a unanimous Supreme Court ruled in favor of the Commission and reversed the dismissal of the complaint, holding that the state action doctrine did not bar the Commission from taking action. The FTC then proceeded with its original administrative actions.

In August 2013, the Commission accepted for public comment a proposed consent to resolve this matter, which did not require a divestiture of Palmyra, even though that would constitute the most appropriate and effective remedy to restore competition in Albany and the surrounding six-county area. At the time, the FTC believed that because Phoebe Putney had combined its hospital permit with Palmyra’s following the acquisition, the legal and practical challenges presented by Georgia’s CON laws and regulations would very likely prevent a divestiture of hospital assets from being effectuated to restore competition, even assuming a finding of liability following a full merits trial and appeals. Therefore, the FTC proceeded to accept the proposed remedy for public comment.

However, as a result of the public comments and further research efforts, the FTC realized that the CON laws are no barrier to requesting a divestiture that would structurally solve the anticompetitive effects of the merger. In addition, in March 2014, North Albany Medical Center, LLC, a newly-formed healthcare entity, expressed an interest in acquiring Palmyra and operating it as a competing general acute care hospital. Seeking clarification on whether Georgia’s CON laws would impede such an acquisition, North Albany filed a “request for a determination” with the Georgia Department of Community Health (“DCH”) on the issue. On June 3, 2014, DCH staff issued an initial determination that, among other things, “returning Phoebe North to its status as a separately licensed . . . hospital for divestiture would not require prior CON review and approval.” That initial determination is currently on appeal, but we believe that Georgia CON laws may not be an impediment to structural relief.

Lessons Learned

From this FTC decision, it is clear that the FTC takes the public comment period very seriously. In this instance, public comments completely changed the FTC’s decision on this matter.  In August 2013, the FTC and the parties reached a “non-structural” settlement, which did not require the parties to divest any assets.  The FTC usually disfavors these types of settlements, but accepted the settlement for public comment based on the understanding that Georgia’s CON laws would prevent structural relief.  Given that the FTC now believes that Georgia’s CON laws do not preclude structural relief, the FTC voted to withdraw its acceptance of the proposed consent agreement and return the matter to administrative litigation.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com

Mark Ye
202-589-1834
mye@dbmlawgroup.com