Phoebe Putney Health System, Inc., et al.; Analysis of Proposed Agreement Containing Consent Order to Aid Public Comment, 53457-53461 [2013-21158]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 78, Number 168 (Thursday, August 29, 2013)]
[Notices]
[Pages 53457-53461]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-21158]


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FEDERAL TRADE COMMISSION

[Docket No. 9348]


Phoebe Putney Health System, Inc., et al.; Analysis of Proposed 
Agreement Containing Consent Order to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before September 23, 2013.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/phoebeputneyhospconsent online or on 
paper, by following the instructions in the Request for Comment part of 
the SUPPLEMENTARY INFORMATION section below. Write ``Phoebe Putney, 
Docket No. 9348'' on your comment and file your comment online at 
https://ftcpublic.commentworks.com/ftc/phoebeputneyhospconsent by 
following the instructions on the web-based form. If you prefer to file 
your comment on paper, mail or deliver your comment to the following 
address: Federal Trade Commission, Office of the Secretary, Room H-113 
(Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Maria M. DiMoscato (202-326-2315), 
FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

[[Page 53458]]


SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 3.25, 16 CFR 3.25, 
notice is hereby given that the above-captioned consent agreement 
containing a consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for August 22, 2013), on the World Wide Web, at 
https://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from 
the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue NW., 
Washington, DC 20580, either in person or by calling (202) 326-2222.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before September 23, 
2013. Write ``Phoebe Putney, Docket No. 9348'' on your comment. Your 
comment, including your name and your state, will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at https://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which . . . is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel grants your request in 
accordance with the law and the public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/phoebeputneyhospconsent by following the instructions on the web-
based form. If this Notice appears at https://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``Phoebe Putney, Docket 
No. 9348'' on your comment and on the envelope, and mail or deliver it 
to the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW, 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at https://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before September 23, 2013. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at https://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order to Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order (``Consent 
Agreement'') from Respondents Phoebe Putney Health System, Inc. 
(``PPHS''), Phoebe Putney Memorial Hospital, Inc. (``PPMH''), Phoebe 
North, Inc. (``Phoebe North'') (collectively ``Phoebe Putney''), HCA 
Inc. (``HCA''), Palmyra Park Hospital, Inc. (``Palmyra''), and the 
Hospital Authority of Albany-Dougherty County (``Hospital Authority'') 
in settlement of administrative litigation challenging the Hospital 
Authority's acquisition of Palmyra from HCA and subsequent transfer of 
all management control of Palmyra to Phoebe Putney under a long-term 
lease arrangement (the ``Transaction'').
    The circumstances in this matter are highly unusual and the 
Commission's discontinuation of litigation and settlement of this case 
on the proposed terms are acceptable to the Commission only under the 
unique circumstances presented here. In particular, as described 
further below, the Commission believes that, assuming a finding of 
liability following a full merits trial and appeals, the legal and 
practical challenges presented by Georgia's certificate of need 
(``CON'') laws and regulations would very likely prevent a divestiture 
of hospital assets from being effectuated to restore competition. The 
Commission has declined to seek price cap or other non-structural 
relief, as such remedies are typically insufficient to replicate pre-
merger competition, often involve monitoring costs, are unlikely to 
address significant harms from lost quality competition, and may even 
dampen incentives to maintain and improve healthcare quality.
    Accordingly, the proposed Consent Agreement, among other things, 
contains for settlement purposes a stipulation from Respondents Phoebe 
Putney and Hospital Authority that the effect of the consummated 
Transaction may be substantially to lessen competition within the 
relevant service and geographic markets alleged in the Administrative 
Complaint dated April 20, 2011 (``Complaint''). The Consent Agreement 
also requires Respondents Phoebe Putney and Hospital Authority to 
provide the Commission prior notice of any acquisition of certain 
healthcare providers in the six-county area around Albany, Georgia, 
including other general acute-care hospitals, inpatient and outpatient 
facilities, and physician practices with five (5) physicians or more. 
Finally, the Consent Agreement restricts Respondents Phoebe Putney and 
Hospital Authority from raising any objections to or negative comments 
about CON applications for general acute-care hospitals in the six-
county area surrounding Albany, Georgia. Additionally, the Consent 
Agreement requires Phoebe Putney and the Hospital Authority to provide 
copies of

[[Page 53459]]

any objections they file in connection with a CON application for an 
inpatient or outpatient clinic providing any of the services provided 
by Phoebe Putney or the Hospital Authority in the six-county area 
around Albany, Georgia within five (5) days of its submission to the 
Georgia Department of Community Health (``DCH'').
    The Consent Agreement has been placed on the public record for 
thirty (30) days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After thirty (30) days, the Commission will again review the proposed 
Consent Agreement and will decide whether it should withdraw from the 
proposed Consent Agreement, modify it, or make it final and issue its 
Decision and Order (``Order'').

II. The Parties

    PPHS is a non-profit Georgia corporation consisting of several 
hospitals and other health care facilities in southwest Georgia with 
its principal place of business located at 417 Third Avenue, Albany, 
Georgia 31701. In 2011, total annual patient revenues for PPHS at all 
of its facilities were over $1.6 billion. PPMH is a non-profit Georgia 
corporation, wholly-owned by PPHS, which operates a 443-bed general 
acute-care hospital with its principal place of business located at 417 
Third Avenue, Albany, Georgia 31701. Opened in 1911, PPMH offers a full 
range of general acute-care hospital services, as well as emergency 
care services, tertiary care services, and outpatient services.
    Respondent Hospital Authority is organized and exists pursuant to 
the Georgia Hospital Authorities Law, O.C.G.A. sections 31-7-70 et 
seq., and maintains its principal place of business at 417 Third 
Avenue, Albany, Georgia 31701. The Hospital Authority is composed of 
nine volunteer members appointed to five-year terms by the Dougherty 
County Commission, and has no employees, no staff, and no budget. Since 
2012, the Hospital Authority holds title to both PPMH and the former 
Palmyra assets (now known as Phoebe North) and has entered into a 
single, long-term lease covering both of these facilities with PPMH at 
the rate of $1 per year.
    HCA, a Delaware for-profit corporation, is one of the leading 
health care services companies in the United States with its principal 
place of business located at One Park Plaza, Nashville, Tennessee 
37203. As of December 31, 2012, HCA operated 162 hospitals, comprised 
of 156 general acute-care hospitals; five psychiatric hospitals; and 
one rehabilitation hospital. In addition, HCA operates 112 freestanding 
surgery centers. HCA's facilities are located in 20 states and England. 
Prior to the acquisition, Palmyra, a 248-bed general acute-care 
hospital located 1.6 miles from PPMH, was owned and operated by HCA. 
Palmyra was a Georgia corporation with its principal place of business 
at 2000 Palmyra Road, Albany, Georgia 31701. Opened in 1971, Palmyra 
provided a wide range of general acute-care services.

III. The Acquisition

    The Commission issued its Complaint in April 2011 charging that the 
Transaction violates Section 7 of the Clayton Act, as amended, 15 
U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as 
amended 15 U.S.C. 45, by lessening competition for the provision of 
inpatient general acute-care hospital services sold to commercial 
health plans in Albany and the surrounding six-county area. The 
Commission also filed a complaint for temporary and preliminary relief, 
pursuant to Section 13(b) of the Federal Trade Commission Act, 15 
U.S.C. 53(b), and Section 16 of the Clayton Act, 15 U.S.C. 26, in the 
U.S. District Court for the Middle District of Georgia. On June 27, 
2011, U.S. District Court Judge W. Louis Sands granted the defendants' 
motion to dismiss, holding that the state action doctrine immunized the 
Transaction from federal antitrust scrutiny. On appeal by the 
Commission, the U.S. Court of Appeals for the Eleventh Circuit affirmed 
the district court's dismissal on state action grounds, although 
agreeing that, ``on the facts alleged, the joint operation of [PPMH] 
and Palmyra would substantially lessen competition or tend to create, 
if not create, a monopoly.'' The Court of Appeals dissolved its 
injunction pending appeal, and the Transaction was consummated on 
December 15, 2011. Subsequently, the Georgia DCH granted Phoebe 
Putney's request for a new, single license covering both Albany 
hospitals, PPMH and Palmyra, effective August 1, 2012.
    Seeking judicial review of the Eleventh Circuit's ruling, the 
Commission filed a petition for certiorari, which the U.S. Supreme 
Court granted on June 25, 2012. On February 19, 2013, in a unanimous 
decision, the Court reversed the judgment of the Eleventh Circuit, 
holding that state action did not immunize the Transaction, and 
remanded the case for further proceedings below. The Commission 
thereafter sought a stay of integration and other preliminary relief in 
the federal district court, and also lifted its stay of administrative 
proceedings and scheduled a plenary hearing to commence on August 5, 
2013, pursuant to which Complaint Counsel and Respondents engaged in 
discovery over the antitrust merits of the case. On June 10, 2013, the 
parties filed a joint motion to withdraw the matter from adjudication 
for settlement purposes, which was granted by the Commission on June 
24, 2013.

IV. The Complaint

    The Complaint alleges that the Transaction would reduce competition 
substantially in violation of Section 7 of the Clayton Act, as amended, 
15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as 
amended 15 U.S.C. 45, with the likely effect of decreasing quality of 
care and increasing prices for general acute-care hospital services 
charged to commercial health plans. The alleged relevant product market 
is general acute-care hospital services sold to commercial health 
plans. The alleged relevant geographic market is the six-county area 
surrounding Albany, Georgia.
    The Complaint alleges that the Transaction was essentially a 
merger-to-monopoly. PPMH and Palmyra were the only general acute-care 
hospitals in Albany, Georgia. The only other hospital in the six-county 
area surrounding Albany, Georgia, is Mitchell County Hospital, a 25-bed 
critical-access hospital in Camilla, Georgia, about 31 miles away. The 
Complaint alleges that, through the Transaction, Phoebe Putney acquired 
a post-merger market share of approximately 86%, and that the post-
merger HHI is 7,453, with a change from the pre-merger HHI of 1,675. 
This market concentration far exceeds the thresholds set forth in the 
Horizontal Merger Guidelines and creates a presumption that the 
Transaction created or enhanced market power. In addition, the 
Complaint alleges uniquely close, direct, and substantial pre-merger 
competition between Phoebe Putney and Palmyra, confirming the 
likelihood of adverse competitive effects resulting from the 
Transaction.
    Entry into the relevant market is difficult. Not only is the 
construction of a new general acute-care hospital extremely expensive 
and time-consuming, but it is also subject to CON regulation in 
Georgia. Any person wishing to build a new hospital in the relevant 
geographic market would need approval from the Georgia DCH. Such an 
application would face opposition from any hospital in the relevant

[[Page 53460]]

market, such as Phoebe Putney, and would likely be denied by DCH due to 
the lack of need as defined by DCH's strict criteria, as discussed 
further below. As a result, new entry sufficient to achieve a 
significant market impact within two years is highly unlikely.

V. The Proposed Consent Agreement

    Georgia's CON statutes and regulations effectively prevent the 
Commission from effectuating a divestiture of either hospital in this 
case. As mentioned above, following the consummation of the 
Transaction, Phoebe Putney applied for and received a single license 
authorizing it to operate the formerly-separate hospitals as a single 
hospital with two campuses. The Georgia DCH issued Phoebe Putney's new 
license and revoked the two separate licenses that previously covered 
PPMH and Palmyra. Georgia's CON laws preclude the Commission from re-
establishing the former Palmyra assets as a second competing hospital 
in Albany, because such relief would require: (1) the re-division of 
the single state-licensed hospital into two separate hospitals; and (2) 
the transfer of one of those hospitals from the Hospital Authority to a 
new owner. Either one of those steps is independently sufficient to 
require CON approval from DCH, which, as discussed further below, would 
not be forthcoming.
    DCH has no statutory authority to revoke Phoebe Putney's current 
single-hospital license on the basis that its acquisition of Palmyra 
was anticompetitive. DCH may only revoke a health care facility's 
license if the facility ``violates any of [DCH's] rules and 
regulations'' or does not meet DCH's ``quality standards'' for 
``clinical service.'' Such circumstances do not exist here.
    Moreover, the divestiture of either hospital from the Hospital 
Authority to a proposed buyer would trigger the need for CON approval 
from DCH. A CON is required for ``[a]ny expenditure by or on behalf of 
a health care facility in excess of $2.5 million . . . except 
expenditures for acquisition of an existing health facility not owned 
or operated . . . by or on behalf of a hospital authority.'' To gain 
CON approval, the CON applicant must prove both that: (a) there is an 
``unmet area need'' justifying a second Dougherty County hospital; and 
(b) establishing such a facility would not have an adverse impact on 
the patient volume and revenue of other hospitals in the same state 
health planning area. Under Georgia's mandatory need formulas, there 
currently are hundreds of surplus hospital beds in Albany, Georgia. As 
such, a new buyer could not prove unmet need in the Albany area as 
required by Georgia law to justify issuance of a CON.
    An applicant seeking a CON for a hospital within the same state 
health planning area as an existing safety-net hospital, such as PPMH, 
must also prove that it will not have a detrimental market share or 
``payer mix'' impact on that existing hospital. An adverse impact will 
be determined if, based on projected utilization, the applicant 
facility would reduce the utilization of the existing safety-net 
hospital by ten percent or more. The CON rules are even more protective 
of teaching hospitals, such as PPMH, requiring as a precondition to 
issuance of a CON that the applicant demonstrate that an additional 
hospital will not reduce the utilization of an existing teaching 
hospital in the planning area by even five percent.
    Finally, Georgia courts have consistently construed exemptions to 
the CON requirements narrowly, and held that DCH lacks discretion to 
grant exemptions not clearly and expressly conferred by statute.
    The proposed Consent Agreement contains a stipulation by Phoebe 
Putney and the Hospital Authority that, solely for settling this 
matter, the effect of the Transaction may be substantially to lessen 
competition within the relevant service and geographic markets alleged 
in the Complaint. In addition to routine reporting and compliance 
requirements, the proposed Consent Agreement contemplates certain 
restrictions on Phoebe Putney and the Hospital Authority discussed 
below.
A. Prior Notice of Acquisitions
    First, for the next ten (10) years, Phoebe Putney and the Hospital 
Authority must give the Commission prior notice for acquisitions of 
certain healthcare providers in the six-county area surrounding Albany, 
Georgia. Under the Order, Phoebe Putney and the Hospital Authority are 
required to give the Commission thirty (30) days advance notice of a 
proposed acquisition that is covered by the Order but not subject to 
the Hart-Scott-Rodino Act (``HSR Act''). If, within this thirty-day 
period, the Commission staff makes a written request for additional 
information or documentary material (within the meaning of 16 CFR 
803.20), Phoebe Putney and the Hospital Authority may not consummate 
the transaction until thirty (30) days after submitting such additional 
information or documentary material. This provision will prevent 
smaller, non-reportable transactions from taking place without notice 
to the Commission, and will provide the Commission with an opportunity 
to review such acquisitions prior to consummation.
B. CON Opposition Restrictions
    Second, Phoebe Putney and the Hospital Authority have agreed to 
restrictions for a period of five (5) years prohibiting them from 
raising any objections to or providing negative comments about CON 
applications for general acute-care hospitals in the six-county area 
surrounding Albany, Georgia, which spans multiple state health planning 
areas for CON review purposes. This provision would allow a new entrant 
to apply for a CON without the potential additional cost and delay 
associated with opposition from Phoebe Putney or the Hospital 
Authority. Additionally, the Consent Agreement requires Phoebe Putney 
and the Hospital Authority to provide copies of any objections they 
file in connection with a CON application for an inpatient or 
outpatient clinic providing any of the services provided by Phoebe 
Putney or the Hospital Authority in the six-county area around Albany, 
Georgia within five (5) days of its submission to the Georgia DCH. The 
proposed Consent Agreement would, however, permit Phoebe Putney and the 
Hospital Authority to respond to questions or information requests 
received from DCH as part of a CON review process.
C. Dismissal as to HCA and Palmyra
    Having accepted a settlement that imposes no further relief upon 
HCA or Palmyra, the Commission has determined to dismiss the Complaint 
as to them.

VI. Opportunity for Public Comment

    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt of comments from interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
proposed Consent Agreement, as well as the comments received, and will 
decide whether it should withdraw from the Consent Agreement or make 
final the Decision and Order.
    The purpose of this analysis is to facilitate public comment on the 
proposed Consent Agreement and is not intended to constitute an 
official interpretation of the proposed Consent Agreement or to modify 
its terms in any way.


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    By direction of the Commission, Commissioner Wright not 
participating.
Donald S. Clark,
Secretary.
[FR Doc. 2013-21158 Filed 8-28-13; 8:45 am]
BILLING CODE 6750-01-P