Georgia law authorizes counties, municipalities and combinations thereof to create hospital authorities to provide health care to the poor through, among other acts, the acquisition of hospitals. The city of Albany and Dougherty County established the Hospital Authority of Albany-Dougherty County (the “Authority”), through which the Authority acquired Phoebe Putney Memorial Hospital. In 2010, the Authority agreed to acquire Palmyra Medical Center (“Palmyra”) from Hospital Corporation of America, which would put the Authority in possession of the only two hospitals in Dougherty County and 86% of the acute care hospital services market in the six counties surrounding Albany. The Federal Trade Commission (“FTC”) issued an administrative complaint, arguing that the acquisition of Palmyra violated federal antitrust laws under § 5 of the Federal Trade Commission Act and § 7 of the Clayton Act. The FTC and the state of Georgia filed suit to enjoin the acquisition of Palmyra, which the United States District Court for the Middle District of Georgia dismissed. The Court of Appeals for the Eleventh Circuit affirmed the dismissal on the grounds that the acquisition of Palmyra was immune from federal antitrust scrutiny under the state action doctrine.
In a significant victory for the FTC, the Supreme Court unanimously reversed the Eleventh Circuit’s decision in an opinion written by Justice Sotomayor, holding in effect that the Georgia legislature did not take sufficient steps to authorize what the FTC has determined to be an anticompetitive acquisition by the Authority of a competing hospital so as to shield the Authority and the acquisition of Palmyra under the state action doctrine. Pursuant to the state action doctrine, substate governmental entities are exempt from federal antitrust scrutiny when such entities act pursuant to a “clearly articulated and affirmatively expressed state policy to displace competition.” Understanding that statutes are not drafted with a complete list of the legislature’s intended effects, the Supreme Court previously had clarified that to qualify as clearly articulated and affirmatively expressed, the anticompetitive effect must be the “foreseeable result” of the act authorized by the state. In other words, the Court’s interpretation of foreseeability has meant that the anticompetitive act must inherently or logically flow from the authority granted by the state.
As applied to Georgia hospital authorities, the Supreme Court found that the powers granted by the state to hospital authorities–including most notably the powers “to acquire by purchase, lease, or otherwise and to operate projects,” and “to lease . . . for operation by others any project”–are general powers analogous to those granted to private corporations. While the Supreme Court acknowledged that the Georgia legislature could have anticipated that the powers conferred might produce anticompetitive effects, the Supreme Court did not find a delegation of authority to act anticompetitively. Stated differently, the Court found nothing in Georgia statutory law that “clearly articulates a state policy to allow authorities to exercise their general corporate powers, including their acquisition power, without regard to negative effects on competition.” Time, and the interpretations of the decision by the federal judiciary, will determine whether this opinion marks a significant change in the application of the state action immunity doctrine.
The Supreme Court reconfirmed that the state action doctrine remains a disfavored exception for allowing anticompetitive conduct to receive immunity from federal antitrust scrutiny. However, Alabama health care authorities likely will continue to enjoy broad antitrust immunity as a result of a provision in the Alabama Health Care Authority Act (the “Act”). The Act expressly provides that so long as a health care authority exercises the powers granted by the state in a manner that is consistent with the purposes of the Act, it is immaterial that in furthering such purposes it takes actions that “may be characterized as ‘anticompetitive’ within the contemplation of the antitrust laws of the state or of the United States.” 22-21-318(a)(31) & 22-21-318(c). This appears to be the clear articulation of authorization to act anticompetitively that the Supreme Court found lacking in Georgia’s statutes. Although Alabama health care authorities seemingly will retain broad state action immunity in the aftermath of the decision, the Court’s decision will likely embolden the FTC (and private litigants) to target hospital and health care authorities nationwide whose enabling legislation falls short of the Court’s most recent standards.
Phillip A. Nichols is a Partner in the Birmingham Office of Balch & Bingham LLP. Martha Legg Miller is an Associate in the Birmingham Office of Balch & Bingham LLP.