High court ruling opens hospital mergers to more scrutiny

Physician organizations hailed the ruling for not going too far as to impede the authority of state medical licensing boards.

By — Posted March 4, 2013

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A multimillion-dollar merger between two Georgia hospitals is subject to federal antitrust laws and should receive further review by a lower court, the U.S. Supreme Court ruled Feb. 19 in a victory for the Federal Trade Commission.

The FTC has been seeking to block Albany, Ga.-based Phoebe Putney Memorial Hospital’s acquisition of Palmyra Medical Center in Albany since 2010, arguing that the merger is anti-competitive. But lower courts had ruled that because Phoebe Putney is publicly owned, the acquisition is protected from federal antitrust scrutiny by the “state action doctrine.” The doctrine allows entities to avoid FTC antitrust action if a state or local government has articulated a clear policy to displace competition and actively supervise the transaction in some way.

In a unanimous decision, justices said the state action doctrine did not apply to the hospitals’ merger. The high court reversed an appellate court decision providing antitrust protection to the hospitals and sent the case back to the appeals court for a finding consistent with its opinion.

“We hold that Georgia has not clearly articulated and affirmatively expressed a policy to allow hospital authorities to make acquisitions that substantially lessen competition,” the justices wrote.

FTC Chair Jon Leibowitz said in a statement that the decision is a win for patients and others harmed by monopolies and other anti-competitive practices. The commission had warned that the deal would reduce competition significantly in Albany and allow the combined entity to raise the prices it charges to commercial health plans for acute care hospital services.

“Today’s 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,” he said.

An attorney for Phoebe Putney declined to comment. Phoebe Putney Health System expressed disappointment with the ruling. The health system, which proposed the acquisition in 2010, finalized the merger in 2011 after it was approved by the Hospital Authority of Albany-Dougherty County in Georgia.

“The lower court rulings were clear in the applicability of state action immunity in accordance with long-standing precedent,” the health system said in a statement. “We are continuing with our planning process to implement needed changes and to allocate resources properly to protect the safety and improve the health and wellness of our community.”

Medical board authority stays intact

The Litigation Center of the American Medical Association and the State Medical Societies issued a friend-of-the-court brief in the case related to the scope of the state action doctrine. AMA President Jeremy A. Lazarus, MD, said in a Feb. 22 statement that the justices’ decision was consistent with the center’s position.

The Litigation Center did not side with either party, but it expressed concern that an overly narrow interpretation of the state action doctrine by the high court could impede inadvertently the authority of state medical licensing boards. The brief urged the court to decide the case in a manner that did not “empower the FTC to encroach on the states’ long-standing authority to regulate the practice of medicine and dentistry within their borders through boards consisting of practitioners in those fields.” The brief was joined by the Medical Assn. of Georgia.

“We are pleased that the high court’s decision did not undercut the AMA’s position supporting state boards as the ultimate authority on professional licensure, patient safety and the practice of medicine,” Dr. Lazarus said in his statement after the ruling.

The Supreme Court decision also is a win for independent physicians who are affected negatively by hospital monopolies, said Georgia attorney Kermit S. Dorough Jr. He issued a friend-of-the-court brief on behalf of Georgia internist Joseph Stubbs, MD, and epidemiologist Corleen Thompson, PhD, MSPH, in support of the FTC’s position. Dr. Stubbs is a former chief of staff at Palmyra Medical Center and past president of the American College of Physicians.

Dorough said such mergers create a very difficult professional environment for independent physicians.

“The hospital that enjoys the monopoly tends to employ more and more doctors,” he said. “As a result, the specialists employed by the hospitals enjoy” more referrals. Competition, on the other hand, promotes fairness, improves quality of health care and helps contain costs for patients, he added.

“From a consumer standpoint, you raise questions of a physician’s objectivity when employed by a hospital, because those doctors tend to refer patients to the specialists employed by the hospital,” Dorough said. “Dr. Stubbs believes it is paramount for physicians to have the ability to refer patients to specialists in the best interest of the [patients] and to have the autonomy to affiliate and enjoy privileges at more than one hospital.”

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Case at a glance

Should a merger between a public and a private hospital in Georgia be protected from federal antitrust scrutiny?

The U.S. Supreme Court said no. The doctrine protects entities from federal scrutiny if a state or local government has articulated a clear policy to displace competition and actively supervise the transaction in some way. The justices held that Georgia had not clearly articulated and affirmatively expressed a policy to allow hospital authorities to make acquisitions that substantially lessen competition.

Impact: Some observers said the decision protects independent physicians from monopolies that unfairly steer all referrals to hospital doctors.

FTC v. Phoebe Putney Health Care System, U.S. Supreme Court, Feb. 19 (link)

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External links

Federal Trade Commission v. Phoebe Putney Health Care System, U.S. Supreme Court, Feb. 19 (link)

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