Georgia Society, American College of Surgeons: 2012

Supreme Court justices Monday probed just how far a Georgia public hospital can go in acquiring another facility before the purchase raises federal antitrust concerns, in a case that’s gotten the attention of the hospital industry at a time of many mergers and consolidations.

The justices didn’t seem to reveal their opinions one way or the other. At one point, Justice Stephen G. Breyer declared: “I’m not at all decided.” Justice Ruth Bader Ginsburg pressed a Department of Justice lawyer to explain how a Georgia state law should have been worded to allow a hospital to acquire other properties.

The Federal Trade Commission has challenged the Hospital Authority of Albany-Dougherty County’s 2011 purchase of a competing private facility, Palmyra Park Hospital. The FTC says such a sale creates a monopoly that will drive up prices for consumers since they are the only two hospitals in a wide geographic area.

But the hospital authority contends that the merger was needed to provide enough beds for low-income patients and that Georgia law allows the purchase, even if it’s anti competitive, and so federal law doesn’t apply.

The two sides wound up at the high court after the FTC appealed a decision by the U.S. Court of Appeals for the 11th Circuit in favor of the hospital and a district court decision that also backed the hospital.

Justices asked questions about the reach and intent of a 1941 Georgia state law that allowed the creation of county hospital authorities so that localities could better serve the poor. Under that law, the Albany-Doughterty County authority was formed, and it bought Phoebe Putney Memorial Hospital to operate as a public hospital. The authority ran the hospital until December 1990, when it formed two nonprofit corporations and one corporation leased the hospital operations to the other.

Though the hospital is now run as a corporation and through leases, its lawyers argue that the state law exempts it from federal antitrust laws through what’s known as the “state action” doctrine developed mostly in the courts. That essentially means the state in its laws has allowed certain conduct by its entities, in this case hospital mergers.

“In the specific area of local hospital services, the Georgia legislature has adopted a model of local public choice, including the choice to reduce or eliminate competition,” Seth Waxman, the lawyer for the Georgia health system, said in his argument before the court.

Hospital Needed Beds

Waxman said Phoebe Putney, as it grew and handled more low-income patients, faced a need for more capacity. A new hospital could have been built, if permitted by the state. “Or we can talk with the private hospital about whether they would like to be acquired. And the record shows that they did that for many, many years, even before the Phoebe Putney entities were created,” Waxman said.

Chief Justice John G. Roberts Jr. noted that there were likely few hospitals in rural areas of Georgia in 1941 when the law was enacted, so there must have been an anticipation that monopolies might be created. “When this law was passed, giving them the power to acquire hospitals, wasn’t it the case that there would likely be only one other hospital or two, so that any acquisition of another hospital would have the merger consequences that this one had?” Roberts asked.

Benjamin J. Horwich, an assistant to the solicitor general arguing on behalf of the FTC, said that the justification for the state action doctrine is that the state is trying to pursue a policy that is part of its traditional prerogatives to regulate its own economy.

In this case, though, the FTC argues that all the state did was grant general corporate powers to the local hospital authorities to buy property, and it’s too broad of an authority to construe as permitting the merger and allowing a monopoly.

“If the state is not actually trying to advance some other policy with respect to the particular conduct at issue, then it can’t be said that the state has done something that federal law should stand aside for,” Horwich said.

In an analysis of the case, Peter C. Carstensen, a professor of law at the University of Wisconsin Law School, says that it represents the first time in nearly 20 years that the high court has looked at its standards for exemptions under the state action standard.

In the meantime, some lower courts have taken a broad view and exempted actions from antitrust law whenever the competitive harm was something that could reasonably have been foreseen by lawmakers. In other cases, courts have tried to figure out whether the question of competition was central in lawmakers’ minds.

The American Hospital Association and Georgia Hospital Association said in their brief that it’s important that valuable work by hospitals not be impeded by worries over antitrust issues. “AHA has a specific interest in this case, because many of its member hospitals are publicly owned and operated by state and local governments,” their brief said.

“More generally, the AHA has a longstanding interest in how the antitrust laws are applied to hospital mergers, which often foster, rather than diminish, competition, and in many cases are necessary for hospitals to deliver care effectively,” the brief said.