FTC, GA Challenge 'Anticompetitive' Phoebe/Palmyra Acquisition

John Commins, for HealthLeaders Media , April 21, 2011

In addition, the complaint claimed that the deal will adversely impact the quality and breadth of services available in the Albany area. Phoebe and Palmyra have competed for patients in the general acute-care hospital services market. That competition has spurred each to increase the quality of its patient care; this "non-price" competition would be eliminated by the acquisition, the complaint said.

Phoebe's board approved a recommendation from its management that it make a formal offer to HCA for Palmyra on Oct. 7, 2010. However, instead of directly approaching HCA with its offer, Phoebe developed a plan under which the Authority would acquire Palmyra and then lease it to a non-profit corporation controlled by Phoebe.

The FTC contends this structure was arranged by Phoebe to avoid federal antitrust scrutiny. On Nov. 16, Phoebe made a formal offer to HCA for Palmyra, an offer that was not reviewed by the Authority. On Dec. 2, 2010, Phoebe's board approved the final terms of the deal, but the transaction still had not been presented to the Authority. The deal was presented to the Authority for the first time at a special meeting held on Dec. 21, 2010. At that meeting, the Authority approved the deal that would give Phoebe control over Palmyra immediately after the deal was closed, the complaint states.

Federal and state officials said they expect Phoebe, the Authority, and HCA to argue that the transaction is exempt from federal antitrust liability under the "state action" doctrine – which provides an exception for anticompetitive conduct if it is an act of government. In this case, the complaint alleges, the transaction was motivated and planned exclusively by Phoebe, acting in its own private interests.

And, rather than acting in the State of Georgia's interests, the complaint alleges that the Authority was a "straw man" used to shield an "overtly anticompetitive transaction from antitrust scrutiny." Even though it had no independent analysis of the deal, the Authority committed $195 million to the purchase without considering the adverse effects the deal would have on healthcare prices in the area, and played no supervisory role in connection with the transaction, the complaint states. The complaint states that since at least 1990, the Authority has not actively supervised Phoebe in any way, and has made no effort to review any of the hospital's recent price increases. Thus the "state action" doctrine cannot be used as a defense, the complaint alleges.

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