Supreme Court Rules Against Hospital Merger Creating Potential Mess

The U.S. Supreme Court Tuesday dealt a blow to a merger of two hospitals in Albany, Ga. when all nine Justices agreed that the deal was not shielded from scrutiny by the Federal Trade Commission (FTC) as had been asserted by one of the hospitals.

Phoebe Putney Health System, operator of the largest hospital in Albany, agreed to purchase its only competition in town in 2010 from owner Hospital Corporation of America (NYSE: HCA). The deal was to merge HCA Palmyra Park Medical Center with Phoebe Putney Memorial Hospital, creating one system that would deliver more than 85 percent of the acute-care hospital services to a mostly rural six-county area with 170,000 residents.

The FTC did not like those numbers from an antitrust perspective and challenged the deal. Phoebe Putney argued that the FTC had no say in the deal, as the state of Georgia had drawn up special exemptions from federal antitrust scrutiny if one of the parties is a government or public entity under a state action doctrine. Phoebe, while a private non-profit company, was technically operating under a local public hospital authority.

A lower court in Albany sided with Phoebe Putney, agreeing that the Hospital Authority of Albany-Dougherty County met the requirements for a special purpose hospital authority under state doctrine and the deal was immune from FTC scrutiny. When an appellate court in Atlanta upheld the ruling in December 2011, the merger went ahead as planned.

All of Palmyra’s assets were transferred from HCA to Phoebe Putney and the hospital was renamed Phoebe North in 2012.

But the Supreme Court agreed to hear the case on further appeal from the FTC. Arguments were made on November 26, 2012.

On Tuesday, the Supreme Court unanimously said that the lower courts had misread Georgia’s state action doctrine.

“We hold that Georgia has not clearly articulated and affirmatively expressed a policy to allow hospital authorities to make acquisitions that substantially lessen competition,” Justice Sonia Sotomayor wrote for the Court. “The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings.”

“[The] ruling is a big victory for consumers who want to see lower health care costs, and the Court’s opinion will ensure competition in a variety of other industries, as well,” said FTC Chairman Jon Leibowitz in a statement. The FTC is currently examining the opinion further to decide what actions need to be taken in the case, including a potential unwinding of the deal.

Phoebe has expressed public disappointment in the ruling, noting that it has been operating the former Palmyra hospital location for more than a year with no issues. The company said that it will continue with the merger integration while it fights further FTC action in court.

“We have not changed our vision,” Phoebe CEO Joel Wernick said at a press conference. “We will proceed with the plans we have until someone tells us we cannot. Nobody has told us that yet; (the opinion) just said that it is to go back for further proceedings.”