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FTC, AG delay hospital merger

Photo by Jason Braverman

Photo by Jason Braverman

ALBANY,Ga. -- The Georgia Attorney General has joined an effort by the U.S. Federal Trade Commission to temporarily block the $195 million acquisition of Palmyra Medical Center by the Hospital Authority of Albany-Dougherty County, according to a suit filed in U.S. District Court in Albany Wednesday morning.

The FTC voted 5-0 Tuesday to ask the federal court for an preliminary injunction to hold up the proposed merger until it can complete its review of the merger and bring the complaint before an administrative law judge.

Approval of the purchase agreement by the county from Hospital Corporation of America would result in Palmyra being operated as a not-for-profit facility by Phoebe Putney Health System, parent company of for-profit Palmyra's rival, Phoebe Putney Memorial Hospital.

The FTC charges that the merger amounts to the creation of a health system monopoly for the six-county area that includes Dougherty. The federal commission was also critical of Dougherty County's Hospital Authority, saying that it has not performed its duties for two decades and simply serves as a "strawman" to hide "an overtly anticompetitive transaction from antitrust scrutiny."

Phoebe CEO Joel Wernick called the FTC action "disheartening" at a Wednesday afternoon news conference. Wernick, speaking to reporters at Phoebe's Willson Board Room, said Phoebe officials still feel the Hospital Authority's acquisition of Palmyra is in the best interest of Southwest Georgia.

"I want all to know the Hospital Authority of Albany and Dougherty County and Phoebe Putney have cooperated 110 percent with every request made of it by the Federal Trade Commission," Wernick said, reading from a prepared statement. "It is disheartening that the FTC would attempt to block this transaction because we remain confident, especially with the increasing demand for collaboration in the delivery of health care, because we know this transaction will benefit the health of the citizens of our community."

Asked about details of the complaint, Wernick said the case was attorneys' hands and it wouldn't be prudent to comment.

According to a statement on its website, the FTC contends that Phoebe has structured the deal in a way that uses the Hospital Authority of Albany-Dougherty County in an attempt to shield the anticompetitive acquisition from federal antitrust scrutiny under the "state action" doctrine.

"We have challenged this transaction for one very simple reason," said Richard Feinstein, Director of the Federal Trade Commission's Bureau of Competition. "By eliminating vigorous competition between Phoebe and Palmyra, this merger to monopoly will cause consumers and employers in the Albany region to pay dramatically higher rates for vital health care services, and will likely reduce the quality and choice of services available in the community as well."

Georgia Attorney General Sam Olens has joined the suit, saying the merger would harm competition and drive up health care prices. He has filed a separate complaint in U.S. District Court asking that the court bar Phoebe from moving forward with the purchase until the FTC's challenge can be heard and appealed if needed.

Palmyra officials released a one-line statement acknowledging the filing.

"We are aware of the filing, and are awaiting judge's decision," Palmyra spokesperson Eric Riggle said in an emailed statement.

HCA officials had no statement Wednesday.

An evidentiary hearing before an administrative law judge has been set for Sept. 19 at the FTC in Washington.

Wernick has said publicly multiple times that the acquisition is about addressing an acute shortage of certified beds that Phoebe is facing, especially in its intensive care unit. He has said that the hospital is facing a decision on whether to build or buy, and that buying Palmyra makes more business sense.

In December, Wernick said that Phoebe reached out to Palmyra's parent company, HCA, to buy the for-profit Albany hospital.

The FTC complaint contends that the proposed transaction violates federal law by eliminating vigorous competition that has between Phoebe and Palmyra. The complaint also argues that Phoebe has used the Hospital Authority as a "strawman" to hide anticompetitive activity from federal antitrust review.

The FTC contends that if the purchase were allowed, Phoebe would have a market share of more than 85 percent in the six-county area that includes Dougherty. The commission noted that there was only one other independent facility in that area.

According to the complaint, by eliminating the direct and substantial competition between Phoebe and Palmyra, the transaction would enhance Phoebe's ability and incentive to increase reimbursement rates charged to commercial health plans and their members, leading to higher health care costs for the area's employers and their employees, according to a statement on the FTC's website.

The FTC contends that on Oct. 7, 2010 Phoebe's board approved a recommendation from its management that it make a formal offer to HCA for Palmyra. Instead of approaching HCA with its offer, however, the FTC says Phoebe officials developed a plan by which the authority would acquire Palmyra and then lease it to a not-for-profit corporation controlled by Phoebe Health System in an effort to avoid federal antitrust scrutiny. On Nov. 16, 2010, Phoebe made a formal offer to HCA for Palmyra.

That offer was not reviewed or approved by the Hospital Authority, the FTC charges, and the authority was presented with the proposal only at a special called meeting on Dec. 21. The authority OK'd the deal, then at the same meeting approved a plan for Phoebe to manage Palmyra on the county's behalf.

The FTC further charges that the authority has been nothing more than a rubber stamp for Phoebe for 21 years, stating 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." Because of that, FTC officials argue, the "state action" doctrine cannot be used as a defense to Phoebe's proposed acquisition of Palmyra.

The complaint is not a finding or ruling that the defendants have violated the law. FTC officials say a complaint is filed when there is "reason to believe" that the law has or is being violated. The allegations will be ruled upon after a formal hearing by a judge.

The complaint itself has been sealed by U.S. District Judge Louis Sands, according to officials with the federal court in Albany.