Opinions to watch for: FTC v. Phoebe Putney Health System

On November 26, the Supreme Court heard arguments in FTC v. Phoebe Putney Health System, Inc., which means that an opinion should be coming down the pike fairly soon. I’m interested in this case for three reasons: (1) it’s relevant to antitrust, which is an interest of mine (I studied Industrial Organization in grad school and teach a Law & Econ of Antitrust course); (2) it’s relevant to privatization, because it involves state-action immunity from antitrust; and (3) the FTC’s side was argued in the Supreme Court by my friend and co-clerk Ben Horwich, assistant to the Solicitor General.

First, let’s talk about the Eleventh Circuit opinion in the case from December 9, 2011; on later days, we might talk about some of the briefs or oral argument.

Georgia, under its 1941 Hospital Authorities Law, allows cities or counties to determine that a public hospital authority is necessary for the delivery of hospital services. Hospital authorities can operate projects (for instance hospitals), acquire projects, lease them, form physician networks, and basically anything that private organizations can do and more (for instance acquire necessary property by eminent domain). The City of Albany (Georgia) and Dougherty County established their hospital authority in 1941, and acquired Phoebe Putney Memorial Hospital. They ran it until 1990, when they leased it to a nonprofit they created, Phoebe Putney Memorial Hospital, Inc.

Twenty years after that, in 2010, they decided to acquire a competing hospital, Palmyra Park Hospital. The FTC challenged the acquisition as tending to create a monopoly — a practice forbidden by Section 7 of the Clayton Act. The hospitals argued that the activity was immune from the antitrust statutes because of the state-action doctrine.

State-action doctrine was established in Parker v. Brown (1943): states themselves aren’t subject to the antitrust laws, so — for the sake of federalism — they’re free to engage in anticompetitive conduct that would be illegal for private entities. Municipalities and political subdivisions don’t have such a broad immunity; instead, under City of Lafayette v. Louisiana Power and Light Co. (1978) and Town of Hallie v. City of Eau Claire (1985), they get immunity if the state authorizes the action by statute and also has “clearly articulated a policy authorizing anti-competitive conduct.” (Georgia hospital authorities are considered “political subdivisions” for the purpose of antitrust law under Eleventh Circuit precedent.)

Now “clearly articulated a policy authorizing anti-competitive conduct” doesn’t necessarily mean “clearly articulated.” Really, it doesn’t need to be clear at all under Town of Hallie; all you need is that anticompetitive conduct be a “foreseeable result” of the state statute. And in this case, according to the Eleventh Circuit, that forgiving standard was easily met: the conduct was clearly authorized because the statute explicitly allowed mergers, and when a statute allows mergers it must be contemplating some amount of anticompetitive conduct. So the state-action doctrine shields the hospital authority from antitrust liability here.

FTC v. Phoebe Putney Health System will be interesting to watch for, since it’s an opportunity for the Supreme Court to tighten up the conditions for state-action immunity. I’m not exactly what you’d call an antitrust hawk, but it’s unlikely that the optimal policy would be antitrust immunity for governmental bodies only, which puts governments in a more favored category than private entities and encourages business enterprises to be run within the public sector.