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October 8, 2012 9:17 pm

FTC chairman fights back against Phoebe Putney brief

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This article is provided to FT.com readers by PaRR (Policy and Regulatory Report)— a newly launched product of The Mergermarket Group providing proprietary intelligence and research on competition law and sector-specific regulatory changes around the world. www.parr-global.com

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Disputing the claims of Phoebe Putney, the Federal Trade Commission (FTC) is not asking the Supreme Court to create a new state action standard, FTC Chairman Jon Leibowitz told PaRR.

First articulated by the Supreme Court in the 1943 case of Parker v. Brown, the state action doctrine effectively shields state entities and qualifying non-state entities from federal antitrust lawsuits.

Confusion over which entities meet the criteria for antitrust enforcement immunity could allow some anticompetitive behavior to go unchecked.

“It’s utterly and absolutely consistent with what we have always believed, with the way we believe Parker v. Brown should be interpreted, and its progeny,” Leibowitz told PaRR at an American Bar Association antitrust conference.

“We’re calling for a change, and the change is that the 11th Circuit’s jurisprudence is, we believe, out of line with state action doctrine of the other circuits generally and with what the Supreme Court intended.”

In their 1 October response brief to the Supreme Court, Phoebe Putney and the Hospital Authority of Albany-Dougherty County argued the FTC’s case would aim to create a “standard requiring that an allegedly anticompetitive action be compelled, ‘inherent’, or ‘necessary’ under state law in order to be shielded from federal antitrust scrutiny”.

The transaction involves Phoebe Putney purchasing its nearby competitor Palmyra Park Hospital, in Albany, Georgia, via an arranged lease with the Hospital Authority.

The Supreme Court is scheduled to hear oral arguments in the case on 26 November.

As previously reported, Jackie Ryan, vice president of Strategy at Phoebe Putney, told PaRR that such a standard would overturn decades of precedent.

However, Leibowitz said the agency is not calling for a change from Supreme Court precedent and that the case reflects the FTC’s long-held and bipartisan view of state action immunity.

According to Leibowitz, the 11th Circuit’s position has “been a problem for us since Lee Memorial”, referring to the agency’s complaint in 1994 against Lee Memorial Hospital’s proposed acquisition of Cape Coral Hospital in Florida.

A federal district court dismissed that case, ruling that Lee Memorial’s acquisition of Cape Coral Hospital was protected by the state action doctrine.

An appellate court upheld the ruling, and the FTC decided not to pursue the case in 1995 when Cape Coral ended its agreement with Lee Memorial and instead entered a contract to be acquired by Health Management Associates.

Leibowitz said the FTC believes the Phoebe Putney case “goes further” than Lee Memorial in being out of line with other circuits and the Supreme Court.

Leibowitz responded when asked by PaRR that the agency’s current position is consistent with a task force report issued in 2003 under former FTC Chairman Tim Muris.

“When Tim Muris became chairman … this was one of the issues he had always been interested in; and so we wrote a state action report, we filed a couple of cases,” explained Leibowitz. “Tim and I missed each other by about three weeks, but it was an area that continued in importance for the Commission.”

The task force report recommended a standard of clear articulation – one of the two prongs of state action immunity – based on whether “the conduct at issue has been authorized by the state” and “whether the state has deliberately adopted a policy to displace competition in the manner at issue”.

The FTC has argued that Georgia law provided the county hospital authority with broad corporate powers which would not qualify for state action immunity, while Phoebe Putney has maintained the law granted the authority specific functions that contemplated hospital acquisitions such as the one at issue.

Although the FTC chairman said he did not want to predict how the Supreme Court will rule in Phoebe Putney, he asserted that the case has already been a success in that it has reflected the bipartisan nature of the agency.

“You can certainly see bringing this case and getting this case to the Supreme Court to try to pare back the 11th Circuit’s jurisprudence … would be quite an accomplishment in a bipartisan way and in a way that is much easier to effectuate when you work for a continuing body where you’re always trying to strive for consensus on outcomes and on issues,” Leibowitz said.

Jackie Ryan declined to comment beyond a statement issued 2 October from the Phoebe Putney general counsel.

“Our brief points out to the court that its standard is correct and should not be changed,” said Thomas Chambless in that statement. “The legislature created hospital authorities within the counties of the state and limited them to operation within those counties, while at the same time authorizing them to purchase other hospitals.

It is clearly foreseeable that a transaction like the Authority’s acquisition of Palmyra would occur, and the FTC has no role to play.”

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