Almost one year ago, Federal Trade Commission (FTC) agreed to settle its antitrust challenge of Phoebe Putney Health System’s (Phoebe Putney) acquisition of Palmyra Medical Center (Palmyra) without requiring divesture or any other remedial relief. That settlement came after the FTC ran the table in the Supreme Court with a unanimous decision, and convinced a district court judge in Georgia to halt further consolidation. Since then, the deadline to finalize the settlement by filing the dismissal papers with the district court has been extended multiple times. Why the holdup then, you may ask? But first, some background.
Before the FTC’s favorable rulings, a district court had dismissed the FTC’s attempt to enjoin the acquisition, which the U.S. Court of Appeals for the Eleventh Circuit affirmed. Phoebe Putney then completed its acquisition of Palmyra, and the Georgia Department of Community Health (DCH) revoked the two existing separate licenses and granted Phoebe Putney a new, single license covering the combined hospitals. Issues with undoing the license granted to Phoebe Putney, or getting a new license, effectively prevent divestiture, according to the FTC. The FTC determined that DCH lacks the ability to revoke the combined hospital license granted to Phoebe Putney. The FTC also determined that DCH could not grant a new license necessary to establish a competing hospital in the area at issue because, among other reasons, an applicant could not prove “unmet need” as required by Georgia law. Due to these “legal and practical challenges,” the FTC concluded that it could not obtain divestiture and decided to forego it as a remedy.
Why the holdup then, you may ask? Back in March, Tennessee’s North Albany Medical Center LLC (NAMC) expressed an interest in purchasing or leasing Palmyra (k/n/a Phoebe North) in the event that divestiture is required or agreed upon to remedy the FTC’s concerns with Phoebe Putney’s acquisition of Palmyra. It acted on that interest by asking DCH whether a certificate of need (CON) would be required for NAMC to purchase or to lease Palmyra pursuant to a divestiture order. In response to that request, DCH said that “returning Phoebe North to its status as a separately licensed . . . hospital for divestiture would not require prior CON review and approval; provided the decoupling is within the scope and location of the hospital’s previously grandfathered and CON authorized beds and services and any capital costs are below the threshold.” DCH also concluded that the acquisition of Palmyra from the Hospital Authority would only be subject to review under the general considerations, not the service specific rules, and that “the lease of Phoebe North [f/k/a Palmyra] by the Authority to NAMC would not be subject to prior CON review and approval.”
Not surprisingly, none of this is sitting very well with Phoebe Putney, which has requested an administrative appeal to challenge DCH’s determination that divestiture is possible. All of this has resulted in the FTC asking the district court once again to extend the deadline to finalize the settlement, so that it can determine “whether to make final the proposed consent agreement that would settle the underlying administrative proceedings or take other action.” Given DHC’s response to NAMC’s request, one has to wonder how we got here in the first place.
Editor’s Note: This blog post is a joint submission with BakerHostetler’s Antitrust Advocate blog.